Europe is rising while oil is sinking as 2017 hits midpoint
World stocks could be about to record their best start to a year since 1998, when global markets were recovering from the Asian crisis, but oil and the dollar are facing their worst first-half in years.
It has been a six months marked, first, by the crumbling of so-called Trump trades that were premised on US President Donald Trump's pledges of multi-trillion dollar spending.
The second feature has been a political and growth outlook shift in Europe which has lured investors back to the continent.
And 16pc to 17pc gains in emerging markets and Europe on a dollar-adjusted basis have boosted world stocks around 10pc so far this year.
Oil on the other hand is 2017's worst performer, despite almost 2m barrels per day of Opec supply cuts.
Undercut by high output from shale and some producers such as Nigeria, Brent crude futures have slumped 20pc in their biggest first-half drop since 1997. The price moves have rekindled memories of the 50pc rout seen in the second half of 2014.
But equities have held up well despite a hefty tech share sell-off earlier in June and a run of softer US economic data which hint at slowing price growth and a major setback for the "Trumpflation" trades in vogue at the start of 2017.
Despite two Federal Reserve rate hikes already this year, the dollar has fallen 4.5pc against the world's other top currencies - its worst start to a year since 2006.
"From a global perspective it is increasing the appetite for risky assets," said ABN Amro's chief investment officer, Didier Duret. He also noted the defeat for far-right, anti-establishment parties in French and Dutch elections, as well as a synchronised recovery in world growth. The Eurozone is seen growing 2pc this year, its best run in a decade, while latest data shows consumer confidence at a 16-year high.
In Brexit-bound Britain, which has just been through a messy election, the pound has dropped 3pc against the euro since the start of the year, whereas UK government bonds and the FTSE 100 have risen 2.4pc and 6.4pc respectively.
Emerging markets have also enjoyed a trade and growth bounce.
"There is a growing recognition we are seeing accumulative stability, with lower volatility and lower correlation between assets and this is constructive for creating momentum for equities," Didier Duret said.
While US stocks have returned almost 10pc year-to-date, many investors reckon European stocks offer better value - funds polled by Reuters every month have just upped Eurozone equity exposure to a nine-month high.
"Previously there were lots of reasons not to invest in Europe. Now Europe is growing faster than the US," said Pictet Asset Management's chief strategist, Luca Paolini, who prefers European and emerging stocks.
The past week has seen the biggest US equity outflows in five weeks.
Emerging markets have shrugged off the US rate rises and the oil and tech tumbles. While emerging equities are the top performers, bonds in emerging market currencies have returned almost 10pc in dollar terms, while hard currency sovereign debt is up 6pc.
"At the end of last year, everyone was long dollar but suddenly people realised the dollar was getting weaker. Usually when that happens it's very good for EM assets," said Francois Savary, chief investment officer of Swiss investment manager Prime Partners.
There is likely room for more gains in the coming year, given the sector has underperformed for five years, he added.
But within emerging markets there are losers as well as winners.
Russian equities, heavily oil-reliant and a star of late 2016, have lost 17pc but energy importer Turkey's stock index has risen 30pc, despite inflation, domestic political risks and policy wobbles.
The Mexican peso is the world's top performing currency, up 14pc on the dollar, as faith wanes in Donald Trump's ability to implement his anti-trade and anti-immigration election campaign pledges.
Perhaps the biggest surprise has been Poland's zloty which has surged more than 10pc against the dollar, outstripping the euro's 5.8pc rise.
Brazil's real has been one of the worst-performing currencies, down 5pc in 2017 due to fresh corruption scandals that have hit the country.
"The question for the next six months is how far the positive European momentum should go," said ABN's Duret. "And can China control its slowdown. Can it continue to achieve a perfect soft landing?"