Cautious optimism

Almost a decade on from the scarring impacts of the Lehman’s bankruptcy the global economy looks to be on a solid footing, with global growth in 2018 expected to be the fastest since 2011. The regional composition also increasingly looks more balanced, with slower growth in China and clear signs of healing in the eurozone. But weak productivity growth and wage inflation in the industrialised world mean that people may not immediately feel the benefit.

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It’s not the end of the world as we know it

In 2018, a ‘megatrend’ should come to an end: the era of increasing central bank balance sheets. But this is by no means the end of the world as we know it – a world where central bank policies support risky assets. Central banks will maintain their large balance sheets in 2018, the European Central Bank (ECB) and the Bank of Japan (BoJ) will continue with their very accommodative policy – and this should keep (longer-term) yields at very low levels.

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Rising risks to the status quo

The financial markets’ low volatility underscores investors’ conviction that the long-term global economic trends of modest growth and tepid inflation will also define shorter-term cycles. But risks lie in mistaking the trend for the cycle.

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2018 regulation – Brexit, Dodd Frank reform and MiFID II go live

The Christmas holidays inevitably turn our thoughts to some well-deserved time off, too much turkey, and spending time with family. However, in the regulatory space things are less festive; this is without doubt the busiest time of the year, with a number of regulations going live early next year and the user acceptance testing in full swing. This will be the picture in every financial services firm, and subject matter experts are busy preparing for the avalanche of questions when sales and trading return from their holidays.

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