(Repeats Friday item)
* Global economic growth, U.S. equities seen up next year
* Many central banks still pumping money into system
* Fed likely to tighten but Trump promising stimulus
* Don't be "too concerned by political noise" - fund manager
* But European election calendar again heavy next year
By Jamie McGeever and Vikram Subhedar
LONDON, Dec 9 In a year of political shocks, the
unexpected strength of the global economy going into 2017 may be
the most enduring surprise for financial markets.
Despite all the electoral upsets - Donald Trump's U.S.
presidential victory plus referendums in Britain and Italy that
have pushed both countries into deep uncertainty - economic data
are consistently beating forecasts.
Activity seems resistant to the surprises that once might
have provoked major market drops, helped by huge sums that many
central banks are still pumping into the financial system - and
the prospect of government largesse in the United States where
the Federal Reserve is reducing its stimulus.
The consensus among forecasters had been too gloomy well
before Trump's election last month electrified markets with the
promise of fiscal stimulus via tax cuts and infrastructure
But it's not just soundings from the United States that have
been underestimated amid the political noise, leading
Edinburgh-based Standard Life Investments to refer this week to
the "quiet strength" of the world economy.
A range of Economic Surprise Indices compiled by Citi have
all turned positive this week for the first time since February
2014 - almost three years ago. And a dive into the data shows
how widespread the resilience has been.
This is only the 16th time since comparable records began in
2003 that all eight indices - U.S., euro zone, Asia Pacific,
Japan, UK, emerging markets, China and G10 nations - have been
in positive territory. The euro zone reading is the highest
since October 2010.
GRAPHIC - Citi's Economic Surprises Indices: reut.rs/2gomfyU
A surge in optimism among investors in the month since the
U.S. election - apart from on the bond and some emerging markets
- has been remarkable given the previous consensus on Trump.
Economists at Citi, led by chief global economist Willem
Buiter, warned about the risks of global recession for most of
this year and in August said a Trump victory could cut world
growth by 0.7-0.8 percentage points.
They said this would "easily" push growth below the 2
percent threshold that indicates overall global recession.
However, this week, they raised their 2017 global growth outlook
to 2.7 percent, up from an estimated 2.5 percent this year.
The Organisation for Economic Cooperation and Development is
even more optimistic. Last week it raised its 2017 global growth
forecast to 3.3 percent, compared with 2.9 percent this year, as
Washington prepares to rev up the U.S. economy.
"The prospect of a U.S. recession in 2017 has diminished,"
said Nadege Dufosse, Head of Asset Allocation at asset
management firm Candriam, which has around 100 billion euros of
assets. "We are therefore overweight on equities, in particular
in the U.S. and Japan."
COME ON, IGNORE THE NOISE
If you'd blinked on the morning of Nov. 9, the day after the
U.S. election, you could almost have missed the plunge in
stocks, debt yields and the dollar as Asian and European markets
reacted to Trump's win.
U.S. equities quickly recovered, and the S&P 500 and
Dow Jones haven't looked back, rocketing to fresh highs.
The VIX measure of stock volatility - Wall Street's "fear
index" - has rarely been lower in its 26-year history.
This is despite the surge in bond yields and a punchy
dollar, both of which are tightening global financial conditions
even before the Fed starts raising interest rates in earnest -
and could yet choke off growth.
In a Reuters poll this week, equity strategists forecast the
bull run would continue next year - provided Trump's plans to
stimulate the economy come to pass. His threats to consider
imposing new import tariffs and the possibility of a yet
stronger dollar limited their enthusiasm.
The policy outlook is fraught too as the shift to government
action from central bank money printing gets underway. The
transition is unlikely to be totally smooth, yet as JP Morgan
points out, the close relationship between policy uncertainty
and the VIX index has broken down recently.
GRAPHIC - Policy uncertainty/VIX volatility:
If the last few years, particularly 2016, revealed anything,
it's that most political, economic and financial risks around
the world have failed to make much of a dent in world markets.
Extreme caution may not be the right response to events like
Britain's vote to leave the European Union, Greece's brush last
year with financial collapse and resulting turmoil in the euro
zone, or U.S. government shutdowns due to disputes in Congress.
Mouhammed Choukeir, chief investment officer at wealth
manager Kleinwort Benson, told the Reuters Global Investment
Outlook Summit last month that investors should not be "too
concerned by political noise".
"If I were to roll the clock back five years and told you
there was going to be a Greek crisis, EU crisis, the end of the
euro was imminent, that Brexit would happen, that this
businessman with radical ideas was going to be president and the
U.S. was going to have a shutdown ... everybody would be saying
we'll just hoard cash," said Choukeir, who manages 5.4 billion
pounds ($6.71 billion) of assets.
"But that would have been the wrong decision."
Of course, the last five years have been marked by the most
extraordinary central bank stimulus in history, from zero - and
even negative - interest rates and quantitative easing bond
buying programmes running into the trillions of dollars.
Now, the Fed is pulling back but the European Central Bank
and Bank of Japan will still be priming financial markets with
substantial stimulus next year. The ECB will buy a minimum 780
billion euros of bonds.
The Bank of England in August cut rates to a record low 0.25
percent and resumed its quantitative easing to mitigate any
negative effects from the EU departure.
With the formal Brexit process scheduled to begin in March
and general elections due in France, Germany and the
Netherlands, the European political calendar will again be heavy
next year. That central bank support may come in handy.
(Additional reporting by Mike Dolan; Editing by David Stamp)