2018 Global Outlook

Jan 11, 2018 | Terry Cole


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RBC Wealth Management’s outlook for the economy, equities, fixed income, commodities, and currencies from analysts and strategists across regions.

Why you’ll find the report useful:

It provides RBC Wealth Management’s outlook for the economy, equities, fixed income, commodities, and currencies from analysts and strategists across regions.

 

The report’s articles delve into timely issues that could impact investment portfolios in 2018:

 

Report highlights:

  • A moderate Overweight position in global equities is warranted given the synchronized, durable upswing occurring in most major economies accompanied by low recession risks and relatively tame monetary policies.
  • We recommend a Market Weight allocation to Canadian equities. Valuations appear attractive relative to the U.S. but are elevated on an absolute basis.
  • We are constructive on Canadian banks in light of reasonable valuations and conservative earnings expectations. We expect crude prices to remain range-bound as support from OPEC-led production curtailments is tempered by short-cycle U.S. production.
  • In fixed income, major central banks will be in focus in 2018 as they gradually follow the Fed in deliberately normalizing monetary policy.
  • Despite an improving economic backdrop, credit spreads in Canada are at the tightest levels in nearly a decade, which keeps us wary of taking on too much credit risk.
  • Our favorite recession indicators are not yet flashing red or even yellow. U.S. recessions have always been preceded by the arrival of restrictive credit conditions. The yield curve, while flatter, is not within that range and is still pointing to attractive equity returns.
  • There are a myriad of other indicators signaling that the economic expansion and, by proxy, the equity bull market can persist, including employment trends, the Leading Economic Index, GDP growth versus fed funds, and an important manufacturing index.
  • Rising interest rates increase the vulnerability of all global debt hot spots, but the problematic debt situations in the world are mostly manageable.
  • Cryptocurrencies are unlikely to replace traditional money in the short and medium term. The underlying technology, blockchain, seems to hold considerable promise and could redefine several industries’ rules of operation, especially in the banking industry where it will transform the way money is moved and stored.
  • The health care industry stands to gain as technology will play a greater role in transforming patient care and speeding up medical advances. We are seeing cutting-edge innovations in big data, artificial intelligence, and robotics impact health care. The potential for additional productive advances seems open-ended to us and should provide investment opportunities.
     

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