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The quarter witnessed a striking contrast between positive news on the one hand (economy, corporate profits) and negative sentiment / high risk aversion on the other.

Worries dominated the markets, not only regarding the European sovereign debt crisis and the initial lack of decisiveness among European politicians to take action, but also regarding monetary policy in China.

The markets were torn between shaky confidence and no confidence at all. The publication of one weak economic indicator could trigger a sell-off.

Currency movements were decisive to equity performances. Simply due to the euro’s plunge against the US dollar (-9.5%) and the yen (-14%), Euro zone investors holding global equity portfolios were able to limit their losses (-3.5%). In US dollar terms, however, global equities lost more than 12%.

The weak euro and high risk aversion were mainly due to the crisis on the European government bond markets. Such a large-scale sovereign debt crisis among the developed economies is indeed unprecedented.

Investors switched southern European paper into (safer) bonds from Germany, the Netherlands and the US. As a result, bond yields fell in the latter group of countries, and rose in southern Europe.

Policy makers approved a support plan for Greece in May, along with an initiative to support other Euro countries on the verge of financing problems. The measures taken contributed to lower political risks in June.

The budget restructuring initiatives and plans announced not only by southern European countries, but also by Germany and France were positive. The news that China wants to loosen its currency regime was well received.

Growth differences filter through to inflation. As a consequence, inflation in the developed economies continued to show a downward trend, while the general price level rose in a number of emerging economies. China took measures to cool down its overheated real estate market.

The major economies continued to be supported by extremely low interest rates, while a number of central banks in emerging markets had to resort to monetary tightening policies.