Nicholas Spiro

Macroscope | Trump’s America is outperforming the world as the economy and financial markets buck slowdown trend

Nicholas Spiro says the buoyancy of the US economy and stock market, amid declines in other countries, is likely to continue for a while, though trade tensions remain a risk

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President Donald Trump speaks at a campaign rally on June 27 in Fargo, North Dakota. Despite Trump’s trade dispute with China and frictions with other trading partners, the US economy has performed well this year. Photo: AP

Nicholas Spiro

Published: 4:30pm, 28 Jun 2018Updated: 10:35pm, 28 Jun 2018

On Monday, it appeared that United States president Donald Trump’s assault on the global trading system was starting to take its toll on America’s stock markets.

The technology-heavy Nasdaq Composite index dropped by more than 2 per cent, its sharpest one-day fall since early April. Even the VIX Index, Wall Street’s “fear gauge”, which measures the anticipated volatility in the benchmark S&P 500 index, shot up to its highest level since late April, having stood close to its record low for the last month.

According to the latest global manufacturing and services Purchasing Managers’ Index survey, produced jointly by JPMorgan and IHS Markit, a data provider, the US has overtaken the euro zone as the principal driver of growth. Last month, America’s economic output rose at its fastest pace in over three years amid a slowdown in Europe, Japan and several leading emerging markets, notably China, where the combination of the trade dispute with the US and the government’s deleveraging campaign is crimping growth.

As I argued in an earlier column, the period of synchronised global growth has come to an abrupt end, and has been replaced by what JPMorgan calls “US economic exceptionalism”. The buoyancy of America’s economy, underpinned by an exceptionally strong labour market and an aggressive fiscal stimulus package, was evidenced by the Federal Reserve’s decision earlier this month to step up the pace of monetary tightening. Jerome Powell, the new Fed chair, declared the US economy to be in “great shape”.

Since the start of this year, US equities have delivered the best returns across the major asset classes, fuelled by the strongest corporate earnings since 2011. The Nasdaq Composite has risen by nearly 8 per cent, while the Russell 2000, an index of small-cap stocks which generate most of their revenues in the US, is up by 7 per cent.