Hiking cycle
The Federal Reserve in the US has already begun its hiking cycle, with Gartside expecting another three rises in 2017, and a further four coming in 2018. Trump is promising lower taxes, deregulation and other business friendly policies.
He says: “I’m a big believer in animal spirits driving economies because the reality is that economies are collectives of us. Modelling our individual behaviour is a nightmare and as consumers we all do irrational things.”
So, where’s the fear? Much of this has, says Gartside, been tackled by the actions of the Fed and other central banks. “In the first weeks of 2016, many people thought the world was ending. Equities were off around 10% and there was a view we would soon be in recession, but the central banks did extraordinary things.
“In Japan, they moved to a negative deposit rate; in Europe they went further negative with QE to buy corporate bonds; and there was an expectation the Fed would move interest rates four times in 2016.
“Central bankers were alert and that helped underwrite growth this year. At the start of 2016, in Europe the average yield on the corporate bond index was around 1.5% but by the end of the year it was 0.9%.
“When we talk about getting low borrowing costs to the broad economy, that’s a success for central bankers.”
