Bullish global growth rates and ongoing US concerns about inflation should result in a general tightening of interest rates around the world.
There was a significant change in expectations for global growth that occurred in April/May, according to Putnam Investments head of investments Kevin Cronin.
Growth figures of 0.2 per cent in the first quarter (Q1) of 2007 for the US had perhaps indicated a weakness in global growth but, according to Cronin this reflected a correction in inventory numbers, rather than any systemic weakness in the economy.
US rates are likely to remain on hold, Cronin said, but this has to be put into the context of an easing sentiment earlier in the year.
"Our view is that the Federal Reserve Bank (Fed) is at best on hold and if anything is likely to tighten monetary policy," Cronin said.
"If you listen to what the Fed said and we've learnt to take them at there word, they are very concerned about inflation and it's persistence."
Australia rose a healthy 1.6 per cent in Q1 and 3.8 per cent year on year over Q1, while Europe was up 0.6 per cent in the in Q1 of 2007 and 3 per cent year on year over Q1 and Japan was 0.8 per cent up in Q1 and 2.6 per cent year on year over Q1.
"When we look across the globe we see a very positive environment," Cronin said.
"Euroland is benefiting from a change in the regulatory environment . Japan is now seeing a true story of economic growth . and Australia is benefiting from positive commodity pricing."
According to Cronin, in order to control such positive growth the Bank of Japan will need to tighten monetary policy.
"We think they have been overly reluctant to tighten monetary policy given the 10 years of retraction they are really going to have to make sure they are on firm footing and positive trajectory," Cronin said.
Cronin says the tightening bias can be seen globally, with the UK likely to tighten today and that while the European central bank is likely to pass on tightening this week, they will continue in a tightening.
Australia is also likely to continue you its tightening policy, Cronin said.
