July 25, 2016
Second Quarter Highlights
- Global equity markets were volatile, experiencing several shifts in sentiment from “risk-on” to “risk-off” in reaction to mixed economic data, corporate earnings news, central bank comments, and predictions about the United Kingdom (UK) vote to leave the European Union (EU).
- Global bond yields continued to move lower on heightened economic uncertainty. Yields on government bonds in Japan, the UK, Germany, and Switzerland hit record lows. Yields are negative out to maturities of 10 years for German bonds and 20 years for Japanese bonds.
- Oil and commodity prices rebounded, helped by the lower U.S. dollar and better supply/demand conditions.
Overview of the Economy
- In the U.S., the consumer side of the economy is stable to improving as shown by increases in consumer spending, personal income, and existing home sales. The industrial side is struggling with industrial production, declining for the ninth straight month and capacity utilization falling to 74.9%, well below the long-term average rate.
- Europe is showing some signs of improvement with industrial production and retail sales up before the UK vote. China and Japan continue to slow, particularly in industrial activity, exports, and retail sales.
- In a surprise result, the UK voted to leave the EU setting off concerns about the potential political and economic impact on the UK, EU, and the rest of the world.
- The Federal Reserve (Fed) left the fed funds rate target unchanged, and lowered growth forecasts for 2016 and 2017. Chair Yellen said “we are quite uncertain about where rates are heading in the longer term.”
For an in-depth analysis of the quarter, please download the PDF.