A few weeks into 2018, broad-based and synchronized growth creates the most favorable economic backdrop in a decade for the global economy, especially as muted inflation has allowed large central banks to maintain supportive monetary policies overall. Such environment has so far warranted the elevated valuations witnessed on equity and bond markets. However, this Goldilock scenario is unlikely to last very long: as the global business cycle continues to improve, eventually triggering a catch-up in inflation, central banks will become under growing pressures to normalize their monetary policies, possibly at a faster pace than they initially thought.
In a context of rich valuations, expectations of such change in the environment may trigger brisk adjustments on financial markets, with traps to avoid and opportunities to grab.
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