After a somewhat lacklustre first half of the year, market expectations have turned increasingly positive for the remainder of 2017, with a clear risk-on sentiment.

The IMF's figures

Economic data releases and recent corporate earnings are continuing to add credence to a stronger global economy in the latter part of the year. IMF (International Monetary Fund) forecast from August calls for global growth of 3.5% in 2017.

However, this number is still below pre-crisis levels, especially for the more advanced economies. The same IMF report downgraded 2017 growth for the U.S. to 2.1% (from April's forecast of 2.3%) and for the UK to 1.7% (from April's forecast of 2%). The economic growth forecasts for the Eurozone and China, however, were revised upwards by the IMF.

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The markets looked to Central Banks for 'guidance' in the first half of the year and that trend will, undoubtedly, continue in the coming months.

The Federal Reserve, having made two rate hikes so far this year, is expected to have one more rate increase this year although much will depend on U.S. Employment and Inflation data releases in the coming weeks and months.

BoE

The Bank of England is scrutinising UK inflation, which has remained constantly above their 2% target. With a rise in UK rates from 0.25% to 0.5%, the UK would still be providing plenty of stimulus and continued support to output and jobs.

BoC

The Bank of Canada raised rates for the first time in 7 years. With Canadian economic growth broadening across industries and regions, and therefore becoming more sustainable, it appears likely that we may see further rate hikes from Canada before the end of the year.

ECB

The European Central Bank (ECB) will look to scale back its ultra-loose monetary policy in the next few months, which may lead to a rate hike before the end of the year. The markets expect that improved economic growth in the euro zone will cause a shift away from years of easy money, where interest rates have been held at 0% for 17 consecutive months.

BoJ

The Bank of Japan is maintaining its monetary easing policy and looks highly unlikely to change this stance any time soon. With Japanese inflation forecast for 2017 at 1.1%, well below the BoJ target of 2%, it appears highly unlikely that the markets will see any rise in Japanese interest rates in the foreseeable future.

RBA

In a similar vein, Australian inflation of 1.9% is also below the Reserve Bank of Australia's 2-3% target range, making it also unlikely that the RBA will raise rates this year.

Bottom Line

So, what does that mean for the markets? With a stronger global economy, we can expect to see a greater risk-on sentiment from market participants. Potentially we could see a bullish tone to Commodities, Indices, Equities, Crude Oil and many currencies with a bearish tone to USD, JPY and Fixed Income.

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