For a long time, those looking to understand the future trajectory of the world’s economy and capital markets have been well-served by looking at data coming out of its largest economy.

While the US consumer’s grip on the global economy is slipping, US indicators, such as the ISM and retail sales, are still proving a much more important story for the world’s economy and capital markets than either Europe’s existential crisis or China’s ongoing economic slowdown.

With this in mind, recent data has been particularly important. The US ISM manufacturing survey, the longest-running and most-trusted of cyclical lead indicators is, again, telling us that brighter times lie ahead for the US and, therefore, the world economy. The outlook for private sector demand in the US also remains encouraging.  Real disposable income grew close to 4% in the first half of the year, while the employment backdrop continues to improve as evidenced by July numbers.

The Federal Reserve is still suggesting that interest rates are unlikely to rise until at least the second half of 2015, although it could easily be hustled into an earlier rate rise if the economic data continue to point in one direction. It is this scenario that we still think has the most potential to upset capital markets in the short term.

Investors will worry that the US economy – for so long a patient in need of monetary A&E – will struggle to digest tighter monetary policy. Such fears could prompt profit taking and swings in risk appetite.

We do not see interest rate rises as meaningfully altering the trajectory of the economic recovery just yet, since we think both the UK and the US have long been capable of digesting tighter monetary policy. However, we do expect a little returning strife in capital markets as investors grapple with the implications of an end to emergency level monetary policy.

While we think equities should bounce back from any weakness relatively rapidly as growth continues, the likely weakness in much of the fixed income space could be more permanent.

As a result we are advising diversification, both at the asset class and sub-asset class level, as an investor’s best defence against the unknowns of the future. Within this diversified portfolio, we are still urging clients to position themselves for further upside in equity markets and a potentially torrid time for much of the bond complex in the months and years ahead.