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Global economic conditions are favourable; we have not seen this degree of synchronised economic activity in a generation. Economies in Western Europe, the United States, Japan and in most of the emerging complex are growing in tandem. The individual rates of growth may not be satisfactory but overall global growth is robust and resilient. Investors have taken note, underpinning stronger equity performance and a gradual rise in global bond yields. The third quarter earnings season is now under way with about a third of listed US companies having reported. The rate of earnings beats is relatively good at around 70%, a bit off the pace from last week. Positive contributions from the energy, materials, financials and cyclicals have supported share prices. Still, the overall rate of earnings growth is in the low single digits, a departure from the higher pace of US earnings growth in prior years. Consequently, the focus in this earnings season will be on Europe and emerging markets, where margin expansion and improved economic activity should drive stronger profits growth. The current market environment is characterised by a steady upward trend in global equity markets and range-bound fixed income markets. However, over the course of the next six to 12 months we would expect more volatility in capital markets as central banks nudge interest rates higher and inflation begins to resurface in advanced economies. Hence, the investment outlook is beginning to change, which will require a change in portfolio construction. Specifically, investors should focus on genuine diversification by combining different types of risk premia, in contrast to a traditional emphasis of dual exposure to stocks and bonds. Examples of diversified risk premia include alpha-generating or long-short strategies, or combinations of mean reversion trades. Blended exposures to currencies, commodities, credit and merger arbitrage returns, alongside equity and selected fixed income exposure can create more robust and better diversified portfolios. This week we expect the European Central Bank (ECB) to announce a tapering of its asset purchases, to be initiated in early 2018. At the same time, the ECB is also likely to announce that its new tapered asset purchase program will continue for longer than previously announced. The ECB would then join the Federal Reserve in moving to a less accommodative monetary policy stance. In early November the Bank of England must decide whether to raise interest rates, a decision justified on the basis of the current inflation but less so given uncertainties for growth given the difficult Brexit negotiations. Overall, global monetary policy is shifting toward normalisation, with smaller European central banks likely to shift in the same direction over the course of 2018. As central banks gradually exit from the policies put in place following the financial crisis, the investment landscape is likely to change, introducing greater uncertainty, episodic volatility and some rise in risk premia. More macroeconomics articles from GAM