We’re nearly halfway through 2018.
It’s been an interesting first half of the year for financial markets, dominated by increased volatility, geopolitics and signs that the global economy has lost some momentum after a strong 2017.
Major central bank’s are also slowly removing some of the extraordinary policy settings that helped to boost riskier assets over recent years.
As a result of those factors, and in contrast to the performance seen in 2017, that’s contributed to a divergence in asset price performance so far in 2018.
As seen in this excellent-yet-simple chart from JP Morgan, while US stocks have continued to charge higher, helped by capital flows and signs that US economic growth is continuing to strengthen, emerging market stocks and currencies have been under pressure, partially reversing some of the strong gains seen in recent years.
Along with renewed trade tensions between the US and other major nations, including China, the spluttering performance from emerging markets reflects higher crude oil prices, a recovery in the US dollar and higher long-term US interest rates.
That’s led to capital outflows from emerging markets, especially those vulnerable to higher external borrowing costs.
As is often the case, movements in the US dollar and interest rates are likely to remain influential on broader financial markets in the second half of the year.
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