Globally, economic growth seems in rude health, helped by widespread monetary stimulus in place for years. Large, front-loaded fiscal stimulus in the U.S. (via tax cuts and higher spending) and other factors are helping. Increased optimism on growth and the accompanying inflationary pressures are driving bond yields up nearly everywhere (except Japan, notably).

The risk of a trade war, particularly with China but with many other potential casualties, has also led to new “strength” in market volatility. Viewed less desirably by some, it represents a normal, healthy and long-absent part of markets. This has upset investors that rely on steady markets that exhibit consistent momentum.

Alas, consistent and predictable aren’t common hallmarks of many markets.

Tony Caxide

North America

Tony M. Caxide, CFA®

Chairman - Senior Investment Council

Economic growth averaging close to 2% in recent years has ticked up of late. A rebounding commodities/materials sector has helped, though at some point this usually becomes a burden on the overall economy. Tax/spending stimulus is another contributor, helping generate robust (if gradually slowing) gains in jobs – leading to an unemployment rate now below 4%. Though this healthy environment typically tends to support risk assets like stocks, the market has shown uncertainty this year. It’s been held back by rising inflation and interest rates that have accompanied strong demand, uncertainty about underlying earnings growth, and fears of trade conflict – all in a setting of no-longer-cheap valuations.

Jeffrey G, Wilkins


Jeffrey G. Wilkins,

Deputy Chief Investment Officer

Japan ended its recent streak of positive GDP growth in the first quarter, posting a slightly negative growth rate for the first time in a couple of years on weak consumption and capital investment. There were some temporary seasonal factors to blame for the decline in growth, however the fact remains that domestic demand has yet to recover meaningfully. More positively and perhaps more importantly, industrial production appears to have stabilized and we saw the highest growth in regular wages since 1997 amidst a very tight labor market. Should Japanese consumers gain confidence in their rising paychecks, consumption should rebound.


Srinath Sampath, CFA®, PhD

Managing Director, Portfolio Management

Core inflation in the eurozone ticked down to 0.7% despite the continuing environment of low lending rates and extraordinary stimulus provided by the ECB through its bond purchases. In the last month, the euro has declined to $1.18 – a level weaker than the $1.20 at which it began the year. The economy continues to be stable: industrial production is strong at 3.1%, both trade balance and the current account are robust, unemployment is inching lower and is currently at a post-crisis low of 8.5%, and retail sales and new car registrations are steady. The dilemma for the ECB and its president, Mario Draghi, continues: should quantitative easing be ended in September because eurozone economies are now able to grow on their own, or should it be extended until such time as inflation grows to “below but close to 2%,” the desired inflation level?


Jeff (Shengde) Liu, CFA®

Managing Director, Portfolio Management

Spring data doesn’t argue favorably for the UK economy. Recently, household borrowing slumped to its weakest in 5½ years. Construction output also plunged in March, with work volume seeing its weakest quarter in almost six years. Nasty weather is blamed for the slowing in consumer and construction sectors. Incidentally, industrial production grew robustly in Q1 due to high demand for energy, though manufacturing, which enjoyed a record run last year, expanded a tepid 0.2%. The good news is that inflation in the UK seems to be peaking. Governor Mark Carney had good reason to keep the Bank of England’s policy rate and QE unchanged at its May meeting.

Emerging Markets

Jeff (Shengde) Liu, CFA®

Managing Director, Portfolio Management

The trade tussle between the U.S. and China came to a recent truce, as China promised cuts in auto tariffs and to substantially increase imports of energy and agriculture from the U.S. to reduce the trade surplus. Simultaneously, the Trump administration suspended the imposition of tariffs on billions of dollars’ worth of Chinese goods pending further negotiations and over concern about harming negotiations with North Korea. If sustained, the truce is not only great news for China, but also for emerging markets as a whole. Of course no one can predict next moves on trade.

Meanwhile, as the U.S. Fed gradually raises interest rates, U.S. treasury yields continue to rise and the dollar has strengthened, EM debt concerns resurfaced. Outstanding debt from developing nations has ballooned to $19 trillion from $5 trillion a decade earlier. Reportedly over half of this is denominated in non-local, hard currencies. Of course after a decade of faster-than-developed-markets economic growth and healthy current accounts in major EM countries, we may not see a debt crisis in emerging markets. However, this debt issue is still an area we pay much attention to.