The End of Disinflation

Get ready for a new macro environment: PIMCO.

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stress ballIt’s time to put your cash to work – that was one key message from a survey of institutional investors released last week as BlackRock showed an industry positioning itself for reflation and shifting from passive to active strategies.

Now another new survey is urging investors to move off the sidelines and re-engage with markets through an active investment approach.

According to a 2017 asset allocation outlook from PIMCO chief investment officer, Mihir P. Worah, the baseline prognosis for global real GDP growth in 2017 remains in the 2.5% – 3.0% range, however headlined inflation in developed markets will pick up. At the same time, investors need to keep an eye on four key trends according to Worah:

Shift from monetary- to fiscal-led policy – As central banks shift away from years of monetary stimulus, the focus will be squarely on fiscal expansion, including U.S. President Donald J. Trump’s new policies aimed at spending $1.5 trillion over the next decade.

The rise of de-globalization – From Brexit to Trump, borders are on the rise, with a new protectionism fueling economic and diplomatic policy in many countries.

China’s currency regime shift – Worah warns of room for policy errors in China’s multi-year journey “from a quasi-basked peg to what may become a managed or even free gloat of the renminbi,” all while facing an increasingly unpredictable U.S. trade policy.

An end to disinflation – Reflation is here as crude oil prices and strengthening real wages lead markets to higher inflation expectations.

You can read the full report here.

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