We expect the US FOMC to tighten policy faster and further than most envisage and think this will drive both the dollar and US Treasury yields higher. By contrast, we expect the yields of governments bonds in Japan and Germany to remain low against the backdrop of exceptionally loose monetary conditions. Meanwhile, we think the US stock market will continue to struggle amid a squeeze on profit margins – we see more scope for gains in equities in the euro-zone and Japan, as the euro and the yen remain under pressure. Finally, we suspect that most emerging market assets will weather Fed tightening well and that the big falls in commodity prices are over.
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