Global Investment Outlook - Fourth Quarter 2014
29 Oct 2014
Markets are fixated on the timing and magnitude of US rate hikes, spurring bouts of volatility. Economic growth and monetary policy are diverging around the world, awakening currency markets from their long slumber.
A strong US dollar dominated financial markets in the third quarter. Dollar-based commodities dived and emerging markets (EM) gave back some of their year-to-date outperformance versus developed stocks. Japanese equities outperformed developed European and US stocks as the yen slid 7.6%. See the table below.
Divergent monetary policies are driving markets. The Bank of England (BoE) and US Federal Reserve are set to raise rates in 2015, while the Bank of Japan (BoJ) and European Central Bank (ECB) are easing. Currencies are the canary in the coal mine that herald shifting dynamics. In addition, currency movements can quickly adjust economies – and make all the difference in portfolio returns.
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