Investors have enjoyed a quiet year in 2017, with few bumpier spots, overall record-low volatility and nice returns. Moving into 2018, the temptation for risk assets is still high.
The economic environment remains strong. In the US, the expected fiscal reform and infrastructure spending should provide a renewed support to an economy that remains buoyant. In the Euro area, employment is rising at the fastest rate in a decade, and robust data point to a continuation of a recovery into 2018. Strong momentum has also been recorded in Japan, and a reacceleration in EM economies is under way, although with differences seen on a country-by-country basis. A revival in global capex is an emerging theme, that could further support the equity markets, as are the stimulative US measures not fully discounted by the market. So far, Central Banks (CB) have maintained an asynchronous rythm, that has allowed the market and the real economy to absorb the very gradual tightening of the Federal Reserve in an orderly manner. But, a “Goldilocks” future is priced into financial markets, so any sign of economies overheating (inflation, wages), or the perception that CB are behind the curve, could lead to sharp corrections in interest rates and volatility in risk assets.