Solid global economy and equity returns

Our updated house view is that the G-3 and Chinese economies will continue solid through September 2019 approximately in line with consensus expectations, while we expect central banks to reduce their accommodation similarly to consensus expectations.

With such as the backdrop, we expect bond yields to rise mildly, the USD to be relatively flat and equity markets to rise quite a bit further, especially as we forecast that geopolitical risks will remain under control.

MSCI World rose 1.9% from our last meeting in early-June through 14 September, vs. our 2.6% expectation (although our targets were for end-September, which could well still be met), justifying our bullish stance at the time, especially relative to bonds.

The SPX rose significantly above our September-end target for 2% growth, posting very strong gains, while all other regions undershot their targets with negative returns in USD terms so far during the period, in some cases due to USD strength. U.S. and German 10-year bond yields hit our targets for end-September, while Japan’s overshot slightly, with our June forecast of a -0.8% USD-based global bond return through September quite on target so far. Our Euro target was matched, while the Yen is now 112 vs. our 110 forecast.