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Yields up as global growth momentum strengthens

Cross asset weekly pic
Activity data in China for the first quarter came in stronger than expected. Notably, industrial production rose 8.5% y/y in March, the fastest pace in 4½ years. With China driving the global manufacturing cycle, this strong pick-up suggests that the pace of world trade and global growth are likely to improve soon.
Bond yields have already reacted over the past month to the stronger momentum profile of global forward looking indicators. US treasury yields have turned up, despite still negative momentum in US leading indicators. In part, this indicates that US yields react to economic conditions abroad. But it also suggests that US fundamentals remain good.
Indeed, we expect the US housing cycle to accelerate again later this year as a strong labour market and lower mortgage rates are boosting the demand for new homes. Importantly, a pick-up in residential investment and construction activity would be another sign that the US expansion has further to run.
Equity markets enjoy the twin boost of an expected re-acceleration in global economic growth coupled with accommodative monetary policy. US equities enjoy robust market breadth. The S&P 500 index is likely to reach 3180 points by late summer. Taking into account a lack of investors’ enthusiasm for equities at this stage, we advise to buy equity market pullbacks in late April / May.

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