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

December was a positive month for the majority of the main asset classes. In equity markets, UK and European equities were particularly strong, with a ‘Santa rally’ driven by increased investor optimism, sterling weakness and stronger commodity prices helping the FTSE reach record highs.

• Asia Pacific and Emerging Market equities were laggards over the month, with the strengthening US dollar and President-elect Trump’s rhetoric weighing on confidence. This was despite a further recovery in commodity prices in December, with oil prices rallying following the announcements of supply cuts from OPEC and non-OPEC nations

• In fixed income, October and November’s bond sell-off moderated in December. However, bond markets were not without headwinds in the month, with inflation expectations rising, the US Federal Reserve (Fed) raising interest rates as expected, while the European Central Bank (ECB) announced it was extending the timeframe of its quantitative easing programme but reducing the size of its asset purchases each month

• We have also included in this issue the final quarter and annual returns for each asset class, with the shifting fortunes of bond and equity markets over 2016 once again highlighting the benefits of portfolio diversification.

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I hope you have found this update helpful. Please do get in touch if you have any queries or would like more information.