Despite positive noises on wages from both the Fed and the ECB there is little sign we’re returning to the ‘normal’ economy of old, where tightening labour markets lead to quickening inflation. And even if it did we maintain there is plenty of hidden labour slack, even in the US. The Eurozone (EZ) is five or more years behind America in eliminating its own worker surplus. More worryingly, the EZ economy is vulnerable, being more exposed to trade wars, the China slowdown and Brexit. The Fed looks far more on point in responding to challenges than the ECB. We remain short euro versus the US dollar and maintain long German bund and 2-year US Treasury positions in the fixed income space.

We’ve expected Sweden’s political and monetary policy shifts to give the Swedish krona (SEK) a boost. And it did for a while. But with Eurozone economic performance softening and commensurate risks for Swedish growth, alongside an already slowing domestic housing market it’s difficult to see the krona reasserting itself near-term. We reduce our long SEK exposure.

The Fed has shifted policy on the path for the Fed Funds rate and the normalisation of its balance sheet. Both are now data-driven, rather than just rates. The shift in approach to the balance sheet is important. This is because relative to expectations, it will increase risk appetite — particularly for duration — and lower interest rates along the curve. The strategy implications are: a weaker dollar; US bond yields are probably capped not far above where we are now; global equities get another boost; emerging market assets and currencies are perceived to be less under threat and gold should do well.