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Commentary on financial markets – June 2018


  • US: trade war against the rest of the world, Fed raises interest rates
  • EU: quantitative easing to continue


This June has been a very wild one, with many important exchange rate events taking place, resulting in high market volatility and significant declines in emerging market equity prices.

The United States, led by President Donald Trump, once again played a major role. At the G7 meeting, the US was caught in the crosshairs with other countries, which are blaming Trump’s protectionist tariff policies and are considering retaliatory counter-measures. Trump left the meeting earlier for a historic meeting with Kim Jong-un on Singapore’s Sentosa Island. At the meeting, the DPRK pledged to work with the United States to eliminate nuclear weapons on the Korean Peninsula. Trump described the meeting as an event that helped avoid a nuclear catastrophe. Japan does not like America’s stance on ending military exercises with South Korea and favors a tough approach against the DPRK. This is not the end of the list of events across the Atlantic. The US raised interest rates in June by a quarter of a percentage point to a range of 1.75-2.0%. The reason for this is record low unemployment and rapid wage growth. The consequence of the rise in US interest rates is a withdrawal of capital back to the US, with emerging markets in particular suffering. Then, at the end of the month, the tariff dispute between the US and China escalated further. US President Donald Trump continued to escalate tensions and announced that he would impose further tariffs of 10% on USD 200 billion worth of Chinese goods. Trump justified his decision as a response to China’s unacceptable policies. Indeed, he had earlier stated that the tariffs were in retaliation for China’s intellectual property practices, saying he wanted to prevent the unfair transfer of US technology and intellectual property to China. An important point of the tariffs, according to Trump, is also the protection of jobs. Chinese stocks thus continued to lose ground in June, losing -8% in aggregate!

The ECB meeting brought assurances that quantitative easing will continue, which the stock markets viewed as good news. The meeting unanimously decided that bond purchases would continue until the end of September at a rate of EUR 30 billion per month and then the amount would be reduced to EUR 15 billion by the end of December 2018. There was no discussion of raising interest rates, but Governor Mario Draghi assured that rates would remain unchanged until the end of next summer or as long as necessary. The ECB’s GDP growth outlook was lowered from 2.4% to 2.1%, while inflation expectations were raised from 1.4% to 1.7%.

The EU leaders’ summit was also held, primarily to address the migration crisis. Angela Merkel sought allies for a common solution to this issue, but not very successfully. The summit showed the importance of the positions of the individual members of the Union.

The first half of this year brought a considerable increase in nervousness and a relatively strong sell-off in emerging markets after a long time. At the global level, the US trade war against the rest of the world, the migration crisis and the ambivalence of the EU countries are being addressed.

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