We have reached the halfway point of 2014 – typically a good time to reflect on how far we have come and where we are headed. This year, key metrics show very slow progress.
On a trade-weighted basis, the U.S. dollar is essentially unchanged. Individual currencies have moved, but very little compared to any previous year. Globally, equities are up 3-6%, with a couple of outliers up 10% and the Japanese Nikkei down just over 7%. Commodities have risen a bit in price, but the move has been gradual. And bonds have performed relatively well as the other asset classes have flattened.
Surprisingly, the stagnation has occurred in the context of some notable global events for the first half of the year, including the unrest in Ukraine and the Middle East.
This almost shocking stability makes it very difficult to prognosticate what will happen for the rest of the year.
Frankly, it is hard to see right now why financial conditions wouldn’t be anything but the same considering that:
- All major central banks are keeping rates low and compressing volatility.
- Politics are, for the most part, deadlocked. And on balance, there is little reason to expect other sweeping changes at the highest level in most large countries.
- Global economic activity looks to be very dull and contained for the year.
Stability is not bad, of course. We can all recall how much we craved stability after the 2008 credit crisis. And to be sure, a stable financial environment does allow business to develop forward strategies.
But many are questioning whether or not we are facing the prospect of too much global stability in the second half of 2014.
My View: Given the wide swing in economic forecasts that we’ve seen this year, nothing appears to be a sure thing – including stability. Analysts aren’t even as consistent in their disagreement as they were in years past. So there may yet be some unforeseen catalyst that provides a jolt to the entire system.
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