Bonds – look out for the rate rise (March 2018) and investor re-alignments

Equities – expect a reasonably positive ‘sentiment’ update in January from CEO’s

Alternatives – Insurance Linked Markets – storm impact will become more tangible

Amongst the more important meetings of the Federal Reserve it currently seems fairly certain that the Fed meeting in late January of this year will cause few worries for Bond based investors. In short, bond market specialists are not expecting any change in rates during the January meeting, however a small rate rise of 0.25% is now quite likely in March 2018 and as usual traders and investors will of course be seeking further guidance on the underlying strength of the US economy.

Most US consumer, business and confidence indicators have been very strong during recent months, however, as any market historian will tell you, there is a slight risk that the bond market underestimates the determination of the Federal reserve to raise rates during 2018, (albeit in small 0.25% increments).

Our sense is that the Federal Reserve has already communicated well with the Bond Market that rates will tighten during 2018, (subject to all incoming economic data) and so the rate rise should not be a major surprise to most. However, holders of longer dated or perpetual bonds with low credit ratings should in our view review their current holdings as soon as possible.

As usual many US & European management teams will provide updates to investors and analysts over the course of January this year. Our sense is that most management teams are enjoying a reasonably strong economic environment at present and most trading updates are likely to be positive in tone. We feel quite confident that European equity markets may well out-perform their US counterparts over the next 1-2 years as the cyclical recovery on the Continent becomes more entrenched.

In the Alternative segment of our portfolios, we do hold some Insurance linked Investment funds as in our view the better managed ones tend to have which relatively low correlation to traditional bond and equity markets. During the 3^rd and 4^th Quarter of 2017, there was a pick-up in storm related and hurricane damage on both sides of the Atlantic and so we expect further updates on the related claims from some of our leading funds in the sector. However, we are not expecting major surprises from these updates as most fund management groups have issued regular communications in recent months.