Markets no longer view another hike in 2017 as likely - BBH

"Soft US data and delays to fiscal stimulus plans from the Trump administration has led to further softening of Fed tightening expectations.  Markets no longer view another hike in 2017 as likely," explained BBH analysts.

Key quotes:

"The US 10-year yield has moved below 2.10% to the lowest since November 2016.  The benign global liquidity backdrop helped propel the S&P 500 to new record highs last month, but it has so far been unable to build on those gains."

"MSCI EM made a new cycle high last week, and is currently up 26% YTD.  It is trading at levels last seen in September 2014, and is on track to test the high for that month near 1104.  After that is the April 2011 high near 1212."

"It’s worth noting that the correlation between EM and DM stocks is currently 0.55, just below the year’s high around 0.60 posted in August.  This is still down from a high of 0.85 posted last summer, but rising correlations suggest that the EM equity outlook has become more dependent on DM than it was in the recent past. " 

"We still believe it is very important for investors to continue focusing on country fundamentals and on hedging out currency risk whenever feasible.  Regionally, Asia is the best equity performer so far in 2017 (up 30% YTD), followed by Latin America (up 23.5%) and then EMEA (up 13%)."  

"Our 1-rated grouping (outperformers) for Q3 2017 consists of Hong Kong, Singapore, China, Korea, and Czech Republic.  Czech Republic improved from 2 to 1, Egypt and Turkey both improved from 3 to 2, and India improved from 5 to 4.  We note that of the top 10 countries, 6 are in Asia and 4 are in EMEA."  

"Our 5-rated grouping (underperformers) for Q3 2017 consists of Colombia, Peru, Mexico, Brazil, and South Africa.   Peru worsened from 4 to 5 while Poland worsened from 2 to 3.  Pakistan enters our model universe at 3, replacing Israel.  We note that of the bottom 10 countries, 5 are in Latin America, 2 are in Asia, and 3 are in EMEA."