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Global equity and bond markets have made a strong run since the middle of July. Over the past half year, bond yields have risen and equity markets have performed strongly, with a rotation towards cyclicals and value oriented stocks. That move was predicated on improved economic data as well as expectations that President Trump’s administration would usher in pro-growth policies. Thus far, however, we have seen some initial reform moves but little legislative progress on tax cuts, tax reforms or fiscal stimulus more generally. As a result, doubts are beginning to surface as to whether the Trump administration can muster up the majorities required on Capitol Hill to see through growth-enhancing policies. Although equity markets have not given back their gains, some pause in the ‘reflation trade’ is discernible and may persist in the coming weeks. Central banks remain another focal point for markets. The Fed’s interest rate decision will be announced in March, with the implied probabilities suggesting that investors anticipate that the Fed will remain on hold until June. That said, the Fed will see one more employment report before its March decision, one which could still swing the majority towards a rate hike next month. The Fed has indicated that every meeting is live and strong growth would present an opportune time for the Fed to nudge rates higher. As far as the ECB is concerned, they are likely to remain on hold until the middle of 2017, following the Dutch and French election results. Thereafter, however, the ECB is likely to reassess and, in light of improved growth and inflation performance, may be in a position to announce a tapering of its asset purchase programme. The upcoming Dutch and French presidential and parliamentary elections may have a big impact on markets. Market participants do not anticipate that populist, non-traditional parties will gain power in the Netherlands or France, but given the poor prediction by polls ahead of last year’s UK referendum or US elections there is an understandable degree of concern in markets. Until the election outcomes are known, we believe market participants are likely to remain cautious. Generally speaking, we continue to position our portfolios for an outperformance of equities versus bonds. We are short duration across most of our fixed income portfolios, preferring to concentrate on selected areas in credit, including mortgage backed securities and subordinated debt of financials. Within equities, we retain a preference for emerging markets and for value styles, but we are also beginning to look for opportunities in more stable returning sectors within global equities. More macroeconomics articles from GAM