We think that recent fears about a global slowdown, and hence the reaction in financial markets, have been overdone. In fact, we expect global growth to accelerate this year and the prices of most commodities to recover, partly as a consequence of better news from China. Accordingly, we think that equity prices will find a floor soon and expect the FTSE 100 to end this year at 6,500. Similarly, financial markets have gone way too far in pushing back expectations of the first rate hike to mid- 2019. So there is scope for government bond yields to recover too. However, sterling is likely to come under more downward pressure ahead of the EU referendum. Even if the UK votes to stay in the UK, worries about the UK’s current account deficit could prevent a sharp rebound in the pound.
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