Growth expectations remain at high levels with global GDP forecast to expand robustly again in 2006, although leading indicators suggest some growth moderation in 2007.The major central banks have been focused all year on cyclical inflation pressures and strong commodity prices and short rates globally have risen further.

As expected, the Fed left rates unchanged at 5.25% at its recent meeting. Investors now believe that interest rates have peaked for this cycle.This expectation remains dependent on a slowing in the growth rate and no further acceleration in inflation.

The ECB increased rates to 3% in August, as fully expected by the market. Expectations of future hikes have not changed much since then, despite continued hawkish comments from ECB officials. Investors still expect rates to end this year close to 3.5% with a 0.25% like fully priced in for this week. 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; 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 neutral in bonds and slightly overweight equities versus the manager average. Sectorwise, positions are pretty balanced at the moment.Geographically, the funds are overweight in Europe, underweight Ireland and the US and more neutral in the other regions.