The way financial markets have moved over the past three months is a good example of the new and more challenging environment. Equity performance was mixed with positive returns in the eurozone, followed by the US, and EM equities trailing with negative returns.

Another notable move has been the rally in crude oil prices, up by more than 4% in the last three months. The gains in the US dollar and rising US Treasury (UST) yields versus German Bund yields reflect stronger US economic prospects relative to those in the eurozone. These trends were exacerbated by the escalation of political turmoil in Italy.

The rise in UST yields and the stronger dollar also hit emerging markets (EM), notably EM currencies, as investors unwound long positions in EM equities and debt. The external vulnerabilities of economies such as Turkey and Argentina exacerbated the move.

Read our expert’s analysis of the asset implications of the mid-year global investment environment.