Barings Quarterly
Also Interesting
Review & Outlook
AMERICA FIRST: Most of the world’s good economic and financial news this summer came from the United States, including persistent growth, a buoyant jobs market and inflationary expectations that are still very much under control. Political drama in Washington proved little more than distracting background noise, as the S&P 500 Index reached new highs during the third quarter, while corporate earnings rose on fresh tax cuts and profitability gains. Strong earnings and a weak currency drove Japanese stocks higher, as the Bank of Japan showed no signs of slowing its monetary support. Europe seemed stuck in the middle, with solid corporate earnings on the one hand, but rising jitters around Italy’s new populist government and the possibility of an ugly end to Britain’s membership in the European Union. EMERGING MARKETS VOLATILITY: Higher U.S. interest rates and lackluster European data drove the dollar higher in July and August at the expense of most emerging markets (EMs). Not only were their third-quarter returns relatively less attractive than those of developed markets, but EMs delivered another dose of their own political dysfunction. Turkey faced a collapse in market confidence, as President Erdogan found himself in a simultaneous standoff with his U.S. counterpart and international investors. Argentina, meanwhile, fell victim to doubts about the reform program it agreed to with the IMF. Messy election campaigns weighed on Brazil’s markets, while the threat of further U.S. sanctions heightened investor concerns about Russian assets.
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