U.S. equity indexes hit records; U.S. dollar index surges to nearly 14-year highs.Richard Turnill, BlackRock’s Global Chief Investment Strategist, summarizes the week highlights news to watch in the week ahead. Read an excerpt of his weekly commentary below, or download the complete commentary as a PDF.
- We see a low risk of Europe’s populist parties winning power near term but expect them to stay on the political radar screen.
- Major U.S. stock indexes hit all-time peaks, led by small-cap shares, on hopes Donald Trump’s economic policies would add fuel to growth. U.S. equities saw further inflows after a record week.
- The U.S. dollar’s surge extended but emerging markets and commodity prices mostly proved resilient due to the global economy’s upbeat outlook.
- Major government bond yields rose further. But the U.S. Treasury yield curve flattened as the market grew more confident of a Federal Reserve rate hike next month and beyond.
- Upcoming data on U.S. jobs and wages should reinforce the reflationary picture.
Global PMIs should show the economic pick-up is broadening, highlighted by the eurozone flash manufacturing PMI hitting a three-year high in November. Another upbeat U.S. jobs report would focus the market’s attention on the number of Fed rate increases in 2017.
Key European political events are now in focus as investors look for another potential populist backlash. The Italian constitutional referendum on Dec. 4 comes as the conservative candidate in France’s presidential election next year is being finalized.
We expect investors to remain pessimistic on Europe relative to upbeat U.S. reflation prospects. We are neutral on European government bonds and favor investment-grade debt due to the ECB’s ongoing purchases. We are underweight European equities on concerns about the growth outlook.