President Barack Obama’s willingness to extend Bush-era tax cuts bodes well for US equity market sentiment, although some of that mood has already been reflected by higher equity prices, according to Sal Oppenheim, the European wealth management firm.

If Obama had not extended the cuts – made in the previous decade by George W Bush – US income taxes would have risen by about 3 per cent this year and capital gains tax would have increased by 5 per cent, the firm – now part of Deutsche Bank, said in an economics and markets briefing note by Gérard Piasko, investment strategist at Sal Oppenheim jr & Cie (Switzerland).

“Continuing these economic stimulus measures has increased confidence among US companies and thus also on the global equities markets. Economic forecasts for 2011 are now being revised upwards, which is also pushing up forecasts for bond yields,” Piasko said.

“However, the equity markets, which have risen since December, and the yields for 10-year US government bonds, which have increased by 0.50-1.00 per cent, and those of other countries, have meanwhile anticipated some (but not all) of the improved economic outlook,” he continued.

Wealth management strategists are charting a course for their clients’ portfolios at a time when concerns about possibly faltering economic growth and geopolitical tensions – as in the Middle East and North Africa – are competing with other worries, such as concerns about rising inflation and higher interest rates.

“Although we expect lower economic growth for the emerging markets in 2011 than in 2010, we still expect it to be higher than the OECD countries. As for Japan, we expect below-average growth in a global comparison, unless the yen significantly depreciates against both the [US] dollar and the euro, which is not our main scenario,” he said.

He said the euro has temporarily recovered some ground and, in the near term, it could move against the dollar in a range of between $1.28 to $1.38, but longer term, the range is more like $1.25 to $1.45, he said, amid continued questions about the parlous debt situation of many European nations. As a consequence, any worries will cement the status of the Swiss franc as a safe-haven currency, he said.

Turning to the bond market, Piasko said Sal Oppenheim continues to prefer to hold emerging market bonds in local currencies.

“Last year, emerging market bonds and US  corporate bonds clearly outperformed European government bonds by 200-300 basis points – even excluding the particularly poorly performing government bonds of European peripheral countries. We maintain our preference for EM and US corporate bonds,” he said.