Global trade tensions, Italian fiscal risk and rising interest rates are just some of the issues world equity markets have faced this year. Only a select few countries, including the U.S., have managed to deliver positive returns. Portfolio diversification has not been very helpful-global bond markets have also delivered negative returns year-to-date. The global economic cycle is settling into a weaker path as we move into a late expansion phase, yet growth will remain above potential.

Key Insights:

Fixed Income vs. Equity: Geopolitical risks are receding but not disappearing. With the cyclical outlook more supportive, we see a window of opportunity for equities to perform well, with increased volatility.

Equity: China has implemented some stimulative measures to support its economy and soften the effects of its trade war with the U.S. While much of the bad news is priced into emerging markets (EM), a little more time may be needed to see EM equities turn around.

Fixed Income: Global bond yields should continue to climb, with 10-year sovereign bond yields reaching 3.25% (U.S.) and 2.75% (Canada).

Currencies: The short-term outlook for the Canadian dollar has improved, although it remains structurally challenged over the longer term.

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