Growth expectations remain at high levels with global GDP forecast to expand by 4.0% in 2006, slightly above last year’s figure of 3.7%. The major central banks have been focused all year on cyclical inflation pressures and strong commodity prices and short rates globally have risen further.

The Fed meets today, Tuesday 8th, with investors firmly focused on a pause in rates with the likelihood of some small additional tightening before year end, and rates peaking for this cycle at close to 5.5%. The Fed is likely to make any pause contingent on a slowing in the growth rate and no further acceleration in inflation.

The ECB raised rates to 3% last week as fully expected by the market. Expectations of future hikes haven’t changed much since then. Investors still expect rates to end this year between 3.25% and 3.5%. Bond prices have taken some comfort of late from well-behaved underlying inflation data and the thought that growth might peak in 2006.

Equity markets still remain reasonably supported by a strong earnings’ background and favourable valuations relative to bonds; high oil prices and tighter liquidity conditions from higher interest rates continue to be a concern and periods of volatility are likely. The gradual ending of super-easy money policies in Japan deserves attention because of its potential negative impact on various asset classes.

Currently, the funds are slightly overweight bonds and equities versus the manager average. Sectorwise, positions are currently pretty balanced, although financials are once again overweight. Geographically the funds remain underweight Ireland and more neutral in the other regions.