Recent developments push out expectations for interest rate hikes: This week equities were strong, global yields fell and the USD was mixed; with the majors of EUR, JPY and GBP losing less than 0.5% and the growth currencies like MXN, CAD, AUD and NZD allstronger; while risk measures dropped back. We struggle to find evidence of a decrease in geopolitical risk, however clearly this is part of the story as most risk metrics have fallen back towards their recent averages. Potentially markets are relying on a global central bank and potentially fiscal response should geopolitics escalate and weigh more heavily on growth, thereby decreasing the market’s tail risk. The core development this week is building evidence that some of the largest economiesin the world are weaker than we had expected (China, Europe, Japan and even the U.S. consumer) leading to a less aggressive pricing for the path of interest rates in the coming years. For most economies once interest rates do begin to rise the pace is likely to be extraordinarily slow and cautious.
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