After a difficult first quarter, equity markets performed better in Q2, driven by continued strong economic data from the US alongside corporate earnings. S&P 500 companies reported Q1 earnings growth of 25%, the highest growth since 2010 whilst unemployment continued to decline to 3.8%, the lowest level since 1968. Counterbalancing that was an escalation in political tensions. Trade war rhetoric between the US and China (more latterly with the EU as well) escalated whilst Italy’s newly formed coalition brought renewed instability to the EU. There was significant movement in FX markets, which saw substantial appreciation of the USD (DXY +5.0%) across most currencies in both developed and emerging markets. Central banks followed through with their indicated paths as the US Fed increased interest rates by 25bps and whilst the ECB kept rates static, they indicated that they would end QE purchases by the end of 2018. Commodities saw further strength in oil (WTI +14.2%) though gold fell by over 5%. Fixed income markets continued to struggle.
2018 began with the narrative of synchronised economic growth, as Europe and most emerging markets saw growth accelerate to become the leaders in global growth during 2017. That has reversed with global growth now slowing and the US outperforming the rest of the world. Leading indicators, be they PMIs or the OECD leading economic indicators, suggest this trend will continue.