What can investors expect after the next correction?

ON MARKETS

The message sent out by the US central bank is pretty clear: the downscaling of QE3 will only go ahead if either growth or inflation in the US accelerates.

This environment is likely to be more friendly than hostile for risky assets, particularly equities. However, we should not forget that it is not only softer growth and labour market dynamics which could tilt the Federal Reserve towards prolongation of its QE programme, but also a significant undershoot of the Fed’s inflation target. Given the underlying trend in inflation and the current state of commodity prices and wages, the latter is much more likely than a sharp increase in inflation over the next six to 12 months. A key question is what the world will look like after the correc...