The two diverging factors set to unfold in 2018—a broad loosening of U.S. fiscal policy countered by gradually tightening monetary policies among some of the world’s major central banks—underscore investors’ challenge of recognizing directional cues throughout the year. PGIM Fixed Income’s Q1 2018 Outlook examines what these signals might look like across the fixed income markets, the global economy, and the various corporate sectors.
In “The Bad Year for Bonds—That Wasn’t,” Robert Tipp, Chief Investment Strategist, looks at how receding monetary stimulus could promote the continuation of a moderate economic cycle and support stable market conditions going forward.
“Our economic outlook for 2018 is one of guarded optimism and, in many respects, an economic and policy repeat of 2017,” Tipp writes, “As a result, our market outlook calls for a similar, but perhaps more muted, result for the fixed income markets in 2018.”
“Four Developments in 2018 and Beyond,” by Nathan Sheets, Chief Economist and Head of Global Macroeconomic Research, lays out four key points that could determine global economic performance in 2018 and in the years to come:
- The responsiveness of inflation to diminishing resource slack.
- The durability of the recent pick-up in global investment.
- The pace of central bank efforts to remove monetary accommodation.
- The vigor of Chinese “deleveraging” efforts.
“In each case, we expect that the economic and policy forces that are in play will support, or at least not disrupt, the ongoing expansion,” Sheets writes.
PGIM Fixed Income credit analysts also provide a summary of how provisions in the newly passed U.S. Tax Cuts and Jobs Act—such as a reduced excise tax on alcohol makers, lower orphan drug credits, and a new BEAT tax—may affect certain industries. Sector outlooks detail how the Act may impact various asset classes.
For media interviews with Robert Tipp or Nathan Sheets, please contact Claire Currie.