The global economy ended 2016 on a strong note, and started this year in the same vein.

Economic data such as PMIs and leading economic indicators from the world’s major economies continue to indicate strong and robust growth, at least in the short- to medium-term. This positive string of economic data releases can be explained by a concoction of looser economic policy and expectations of an improving global economic scenario.

This mix of policies in the leading emerging and developed economies is propelling an increase in consumers' propensity to consume and policies are expected to remain growth-friendly over the next couple of years.

However, some emerging markets will be left with no choice but to tighten their current accommodative stance and adjust their imbalances.

2017 is expected to be a year where political risk takes centre stage and the economic policies of certain countries face many risks which could impact the trajectory of inflation, both domestically and worldwide. US fiscal and monetary policy and the impact they could have in the months ahead on the US dollar and respectively on emerging market currencies

US fiscal and monetary policy and the impact they could have in the months ahead on the US dollar and respectively on emerging market currencies is sure to be a recurring theme, not only during the first quarter of 2017 but also for the remainder of the year. The US dollar is pivotal for emerging market economies, and this year this relevance is expected to

The US dollar is pivotal for emerging market economies, and this year this relevance is expected to be further accentuated as the Trump administration and its new policies begin to infiltrate in the world economy.

The manner and extent to which US policy, both fiscal and monetary, evolves will be a crucial consideration, both for corporate within the eurozone and emerging markets but also their respective authorities and, most importantly, central banks.

In the meantime, we have seen sovereign yields of Italian and French government bonds widen significantly over recent weeks against their counterparts, reaching recent wides.

As we have stated in a number of our recent publications, political risk in the single currency region is expected to be the major driver of market risks in the months ahead, and this has been the major reason behind the moves in Italian and French yields of late. Economic data has remained robust and is expected to remain so in the months ahead.

It is still premature to decipher when Europe could possibly benefit from the pro-fiscal measures to be adopted in the US, but what is certain is that the state of the eurozone’s economy will undoubtedly weigh on the MPC’s members in its rate-setting meeting. Not so much for the decision of interest rates, but more in terms of the withdrawal of liquidity from the market, in the form of an additional reduction in monthly purchases.

Not much of a data-laden week this week. Central bank meetings have quite a long way to go too. Inflation in the US and GDP, industrial production and ZEW survey expectations in the eurozone are sure to keep investors guessing as to where both economies are heading next and what their respective central bank’s reaction will be to this fresh wave of numbers. The US earnings season is almost over and is gathering steam in Europe, but so far we have emerged relatively unscathed. On the contrary, earnings momentum has been sustainable, and this has boded well for risky assets, namely equities and high yield bonds.

Disclaimer: This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.