Economic overview and summary of our asset allocation decisions – February 2017

January was a month of two halves for developed equity markets. Improved economic sentiment, sterling weakness and positive fourth quarter results from a number of companies had driven UK and US equity markets to record highs around the middle of January.

In the markets

• However, after enjoying a calmer start to the year than twelve months ago, the unpredictable geopolitical backdrop, particularly after Donald Trump’s inauguration, was a key factor in the sell-off in markets later in the month

• Elsewhere, Asia and emerging market equities had a positive month overall, with a weaker US dollar and firmer materials prices supportive

• In fixed income, sovereign bond yields continued to rise, as the reflation trade continued for the majority of the month and European growth prospects showed signs of improvement

• In commodity markets, oil prices were weaker on the prospect of further US supply, while the positive performance of gold and the other precious metals in January reflected US dollar weakness and rising geopolitical uncertainty

Chart of the month

In this month’s Chart of the Month, we have highlighted the fall in China’s foreign reserves as it battles to manage the depreciation of its currency and stabilisation of its economy.

Read February’s market and economic update

Our full market and economic update explores the above topics in further detail. You can read it here today.