Trevor Greetham's Clockwise update September: Strong US dollar implications

Strong US dollar implications

The outlook for global growth is positive but inflation remains mostly absent. As long as this remains the case, plentiful liquidity should support a continued bull market in stocks.

The US-led nature of the recovery means the US Federal Reserve is likely to normalise policy ahead of other central banks. The ongoing trend of US dollar strength is good for global growth and it supports our overweight positions in stocks versus commodities, technology versus materials and Japan versus the emerging markets.

Lead indicators in focus

Growth

Our global growth scorecard is enjoying its longest upswing since the series began more than two decades ago.

The Fed is likely to normalise monetary policy ahead of the other major central banks. The ongoing trend of US dollar strength is good for global growth, boosting exporters in Europe and Asia and helping to keep US inflation down.

Inflation

Our global inflation scorecard has been negative for the last two years, reflecting spare capacity and muted commodity prices. This enables G7 central banks to keep policy loose, allowing the long expansion to continue.

Current Asset Allocation positioning

We have been overweight equities since 2012 on the back of a sustained economic recovery with loose policy and muted inflation. We added to our position last month during a period of geopolitically-induced weakness.

We remain underweight commodities. The asset class has not benefited from the mini stimulus in China. Excess capacity and dollar strength remain powerful headwinds.

We are underweight government bonds. We expect poor returns as central banks normalise policy. Within fixed income we prefer credit and high yield.

Trevor Greetham, Director Asset Allocation Fidelity Solutions

Trevor Greetham joined Fidelity in January 2006. In addition to managing multi-asset funds, he is Director of Asset Allocation within Fidelity Solutions. He holds an MA in Mathematics from Cambridge University and is a qualified actuary.

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