U.S. shale technology is an evolving science that will continue to boost output even as fuel efficiency achieved through electric vehicles depletes demand.
Since the Russell 2000 began tracking the performance of small-cap stocks in 1979, the index has broadly matched, if not slightly exceeded, the performance of the more venerable S&P 500® index of large cap stocks (Figure 1).
While the two indexes’ overall performance has been similar and their correlation generally high (0.8 on average; ranging from 0.6 to 0.96 on a one-year rolling basis), they have diverged significantly at times. (Figure 2).
Opposing forces championing integration versus disintegration are assailing Europe. In the past two years both sides have scored important victories. Britain’s Brexit, Spain’s Catalonian independence referendum and the entry of the nationalist Alternative fur Deutschland (AfD) party to the German parliament, or Bundestag, were victories for proponents of lesser European unity. The electoral defeat of far-right forces in the Netherlands and the victory of Emmanuel Macron in France were celebrated by those favoring the guiding principle of an “ever closer union.”
Whatever one thinks of Brexit, the prospects for deeper European integration and the legitimacy of the various national independence movements, the currency markets’ view is unambiguous: they strongly favor deeper political integration:
In each case, a victory for the forces of integration sent European currencies higher, while a victory for the forces advocating less unity, whether within or among nations, led to weaker currencies.
In addition to the political concerns there are, of course, many other factors that determine the direction of the euro-dollar (EURUSD) and pound-dollar (GBPUSD) exchange rates, including the relative economic strength of the eurozone, the U.K. and the U.S. and the relative direction of monetary policy. Solidifying recoveries in the eurozone and the U.K. combined with the seeming inability of the U.S. Congress to pass anticipated economic reforms boosted European currencies and weighed on the dollar for much of 2017.
After a head fake last year, the La Niña weather phenomenon may be coming back for real this time (Figure 1). Cooler-than-normal water is pooling along the Equator on the Americas side of the Pacific Ocean (Figure 2). La Niña is associated with cooler, wetter conditions along the U.S.-Canadian border; warmer, drier conditions in much of the southern United States, and impacts weather patterns worldwide. Past La Niñas have roiled agricultural markets, sending prices on wild rides, often lower amid exceptionally high levels of volatility.
Global competition and technological advances are keeping U.S. inflation below the Fed's 2% target, but could significant government spending help boost it?