The pattern in market performance during 2017 of strong equities, rising bond yields and a weakening US Dollar continued into January. Notably the S&P 500 produced its fifteenth consecutive monthly gain, with a rise of 5.7%. Global emerging markets continued to perform solidly, returning 8.3%, supported by the strength of the global economy and a weak US Dollar. Global bonds had a more turbulent month, with yields generally rising.

However, as the month progressed there was a distinct change in markets. Indications of continuing global economic growth, particularly in the US following tax reform progress, began to weigh more heavily on bonds with US Treasuries notably affected. 10 year US Treasury yields had already risen from 2.0% in early September 2017 to 2.4% by year-end, but rose quicker during January to end the month at 2.7%, the highest level for nearly four years. Signs of an inflation pickup, especially in the US where wage growth is rising amidst a tight labour market, heightened concerns that bonds were increasingly vulnerable. Towards the end of the month the sell-off in bonds, which spread from US Treasuries through to the UK, Europe, and somewhat to Japan, began to have an impact on equity markets, which retracted some of their earlier gains.