The Markets

The second quarter offered a level of drama often found in homes with teenagers. 

When investors realised their good friend, quantitative easing, might have an earlier-than-expected curfew in the US, they threw a hissy fit that resounded through global markets. The outburst interrupted the trajectory of FTSE and the Standard & Poor’s 500 Index, which finished June lower after hitting highs in May. As stocks fell, yields on the benchmark 10-year government bonds hit a high.

Economies in emerging Asia, Latin America, and Europe grew by about 4 percent on average year-on-year during the first quarter as compared to 6.4 percent on average during the past decade. 

When compared to growth rates in developed countries, such as the European Union (EU), that’s still a pretty attractive growth rate. The EU has suffered seven consecutive quarters of recession. It’s hard to say the recovery is going well, but experts are hopeful because the Spanish economy is contracting at a slower rate, Italian business activity isn’t declining as fast as it once did, the French downturn is moderating, and the German economic growth is in positive numbers. 

It’s a different story in the United States. By the end of second quarter, economists were predicting 2014 could prove to be the best year for U.S. economic growth since 2005. The Wall Street Journal’s monthly survey found that, “Economists… expect gross domestic product to expand at a 2.3 percent annual pace this year and 2.8 percent next year. The Federal Reserve edged up 2014 growth forecasts to between 3 and 3.5 percent, from a March estimate of 2.9 to 3.4 percent.” Encouraging economic signs include: 

• Housing market vigor: Experts say housing market strength will be critical to economic performance in the second half of the year.
• Employment gains: Unemployment has dropped from double-digits to 7.6 percent, although there are still about 2.4 million fewer jobs than there were before the recession.
• Confident consumers: After years of paring spending and paying down debt, Americans are feeling optimistic. Consumer confidence now stands at a five-year high. 

While optimism about the American economy is good news, it’s important to remember world economies are like members of a family. What happens to one country or region often has a significant influence on what happens in the others – maybe the UK will soon follow!