However, when we factor in the appreciating dollar/depreciating local currencies effect, our returns drop closer to 1%. The dollar’s strength most likely continued for many reasons, including our relatively high interest rates and robust economy.
In general, international economies continued to grow during the period, despite concerns about trade with the U.S. A number of interesting trade events took place during the quarter, including the world’s largest trade pact being signed by Japan and the European Union. Germany and China also reiterated their commitment to free trade. Meanwhile, the U.S. threatened new duties being set on imports of European cars (among other things), but Europe’s talks of retaliation seemed to cool that threat.
There were many positive points for international developed markets in Q3, including:
- The UK’s jobless rate fell to 4%, its lowest rate in 43 years.
- Germany called for creating a European Monetary Fund that would help better coordinate the EU’s economies.
- Australia joined the U.S. and Japan to invest heavily in infrastructure in the Indo-Pacific region to compete with China’s Belt and Road Initiative.
- The European Central Bank said it would continue to wind down its stimulus program because of Europe’s improving economies.
- In September, the best performing international index (in local currency terms) was Japan’s. The consensus view was that a weakened yen is helping Japan’s exports and overall economy.
- At the very end of the quarter, Canada finally joined a new free-trade agreement with the U.S. and Mexico.
While there seemed to be little in the way of bad news for international markets in Q3, there were a few rumblings:
- Italy struggled with its new populist government.
- France’s President Macron faced decreasing popularity after his significant restructuring efforts.
- Orders for products manufactured in Germany decreased by 3%. Trade uncertainties were cited as the cause.
International developed markets continue to be on a slightly different and delayed path when compared to ours. When ours begins to drop, theirs could actually continue to climb for some time given this difference.