With the half-time whistle about to blow on the 2018 markets world cup, Australian equities have burst from the pack and now sit just behind Portugal in terms of performance.

The week in finance: Private sector credit (Friday)

Private sector credit (Friday) Job vacancies (Thursday)

Job vacancies (Thursday) US inflation (Friday)

Can the battlers from Down Under sustain the effort?

It seems a lot would need to go right and there are some niggling injury worries among key players — like the banks.

It's fair to say, globally the first half has been a scrappy affair.

Just about everyone on the field had a crisis of confidence in February, completely dropping their bundles after stronger than expected US wages data led to fears interest rates would be going up more rapidly than expected.

The ASX certainly sucked up that punishment better than most, and certainly better than Wall Street's S&P500.

Australia zigs as the world zags

No sooner had interest rate worries eased, then things turned really nasty among the big economies; the US, Europe and China.

Cheap shots and illegal tackles — illegal in the World Trade Organisation rule book that is — were dished out as the threat of a global trade war blew up.

The US versus China, the US versus Europe, the US versus just about anyone with a trade surplus became a bitter contest — leaving Australia nervously watching from the sidelines.

It has been like that for a couple of months now.

Overall most markets lost more ground this week, despite a generally positive Friday trade.

The US fell almost 1 per cent over the week, Europe almost 2 per cent while China was down the best part of 4 per cent.

The ASX was once again the exception, gaining more than 2 per cent, but stumbled on Friday. Futures trading points to that loss being recouped on Monday.

Markets on Friday's close: ASX SPI 200 futures +0.2pc at 6,180 ASX 200 (Friday's close) -0.1pc at 6,225

ASX SPI 200 futures +0.2pc at 6,180 ASX 200 (Friday's close) -0.1pc at 6,225 AUD: 74.4 US cents, 63.8 euro cents, 56.0 British pence, 81.8 Japanese yen, $NZ1.08

AUD: 74.4 US cents, 63.8 euro cents, 56.0 British pence, 81.8 Japanese yen, $NZ1.08 US: Dow Jones +0.5pc at 24,581 S&P500 +0.2pc at 2,755 NASDAQ -0.3pc at 7,693

US: Dow Jones +0.5pc at 24,581 S&P500 +0.2pc at 2,755 NASDAQ -0.3pc at 7,693 Europe: FTSE +1.7pc at 7,682 DAX +0.5pc at 12,580 EuroStoxx50 -1.1pc at 3,442

Europe: FTSE +1.7pc at 7,682 DAX +0.5pc at 12,580 EuroStoxx50 -1.1pc at 3,442 Commodities: Brent oil +3.4pc at $US75.55/barrel, Gold +-0.1pc at $US1268/ounce, Iron ore flat at $US64.50

Why are we world beaters (for now)?

Some observers are not convinced by this Australian exceptionalism.

"Just as the global trade war is about to warm up our market lost contact with reality," Peninsula Capital's Richard Campbell said.

"Some explain the three day local market surge as the search for a safe regional haven as the Shanghai market heads south — China's markets have lost $1.6 trillion in the last five months — but the bump up here this week looked strangely fabricated when US markets were weakening and the trade tensions are spreading to India," Mr Campbell said.

Morgan Stanley equity strategist, Chris Nichol, said Australia's crawl off the bottom of the equity league tables can be pin-pointed to mid-April when the US dollar made its move.

In local currency terms the ASX put on 5 per cent in the year-to-date to be up the top, just behind Portugal.

In US dollar terms, it is somewhat less impressive sitting well behind Wall Street and the likes of Japan, France and Portugal — it could be a Cristiano Ronaldo related thing.

Emerging markets crunched by $US

Australia has benefitted from Asia's emerging markets getting swamped by the US dollar, sending a flood of money south to a relatively safe and defensive bolt-hole in a sea of volatility.

A rising US dollar has a disproportionately heavy impact on emerging economies given their reliance on US debt.

On the most recent estimates from the Bank for International Settlements, total $US-denominated debt outside the US rose by 8 per cent last year to an eye-watering $US11.4 trillion ($15.3 trillion).

Around one-third of this debt is owed by the non-financial sector such as households, government and (non-banking) businesses.

Under that debt burden and with the US dollar still rising, Asian markets hit a 6-month low last week.

Hong Kong is down 4 per cent in the year-to-date, Korea has slipped more and China sits sullenly at the bottom of the league table down 13 per cent.

Overall global equity markets have dropped around $US3.6 trillion ($4.8 trillion) this year.

Anything left in the tank?

Morgan Stanley's modelling has cut its emerging markets targets by another 3-to-8 per cent, and even then the investment bank says it is being optimistic.

That would be enough to drop China's Shanghai composite into "bear territory" (a loss of 20 per cent or more), while others in the region would come close.

Firming expectations of four interest rate hikes from the US Federal Reserve and deteriorating trade relations between the US and China are more likely to make things worse than better for emerging markets.

Mr Nichol said in the context that emerging markets remain under pressure, the ASX may benefit a bit more, but it won't be across the board.

"The rotation will feel defensive, growth risk related and potentially ignore the not insubstantial endogenous risks of what is clearly a slowing housing market and broader consumer credit crunch [in Australia]", Mr Nichol told clients.

That means $US dollar earners, infrastructure plays and utilities are the best bets.

And the traditional safe-haven banks?

"We are not convinced of the relative merits for Australian banks given revenue, volume and continued regulatory risks that persist," Mr Nichol said.

Bombs away in the trade war

Security risk? European assembled cars such as Volkswagen are facing a new 20pc tariff and being investigated as possible security risks to the US ( REUTERS: FABIAN BIMMER/FILE )

Just when you thought the threat of a trade war couldn't get much more weird, the US commerce department is investigating European cars as a potential "national security threat".

It is not often the likes of Mercedes, BMW and Porsche could be bracketed in the same category as bombs, but there you go.

The investigation is in its early stages, but should be wrapped up in the next two months.

Even if flash European cars are deemed safe, President Donald Trump may still run them off the road in a reprisal to a reprisal. Yup, that's how trade wars work.

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Mr Trump is clearly unhappy with Europe's threat to impose $4 billion worth of tariffs on the likes of bourbon, jeans and Harley Davidson motorcycles in response to his $10 billion worth of tariffs on European steel and aluminium.

The European Commission's release of what it diplomatically called "rebalancing" measures were met with a tweet threatening a 20 per cent tariff on all EU assembled cars.

Currently, the US slugs EU built passenger cars with 2.5 per cent tariff and larger vehicles are taxed at 25 per cent. The EU taxes Fords and Chevys heading the other way at 10 per cent.

If the tweet was meant to hit the share prices of both European and US car makers it was a success.

According to industry analyst Evercore ISI, a 25 per cent import tariff on auto imports "would pretty much destroy the business of importing cars from Europe/China" to America.

But then again, Mr Trump reportedly told French President Emmanuel Macron he wanted to stop Mercedes-Benz models from driving down Fifth Avenue in New York City, so the 20 per cent tariff may be the old "use a sledge-hammer to crack a nut" approach.

Where that leaves Renault and Peugeot is a different question, although they may be exempt for not causing the same sort of gridlock outside 725, 5th Avenue, Manhattan — centre of the Trump universe.

Perfect. Not a Mercedes in sight on 5th Avenue. ( REUTERS: ANDREW KELLY )

Meanwhile in China ...

Things are not going much better on the eastern front, although Mr Trump's "easy-to-win" trade war with China is starting to look more like a poker game.

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On top of the initial $US50 million worth tariffs levied against the Chinese, the President said he would raise another $US200 billion worth of tariffs if China retaliates, and another $200 on top of that if China retaliates to that.

Rather than responding with one of those "that escalated quickly" memes, China went for the old-school newspaper editorial.

The China Daily editors — or someone higher up — accused the US policy of being "capricious" and being a "symptom of paranoid delusions" that must not distract China from its path to modernisation.

The English-language daily said the United States had failed to understand that the business it does with China supported millions of American jobs and that the US approach was self-defeating.

"The fast-shrinking Chinese investment in the US reflects the damage being done to China-US-trade relations ... by the trade crusade of Trump and his trade hawks," the editorial said.

"The woes the administration is inflicting on Chinese companies do not simply translate into boons for US enterprises and the US economy.

"Protectionism [is a] symptom of paranoid delusions."

Try fitting that in a tweet.

Oil: Peace in our time

As the US was slugging it out with Europe and China, a peace of sorts was declared between avowed enemies; Saudi Arabia and Iran.

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Meeting in the relatively neutral territory of OPEC's Vienna headquarters, the Saudis persuaded the Iranians to lift oil production and put a lid on the current high prices.

Iran was not happy because its even greater enemy, Mr Trump, had (a) tweeted a demand for OPEC to increase production and lower prices, and (b) slapped trade sanctions back on Iran.

The new agreement between OPEC members and Russia (ROPEC?) notionally increases production by 1 million barrels a day (mbpd), although it will take time and given the hapless position a couple of OPEC states find themselves — a shout out to Venezuela, Iraq, Iran and Angola — any increase is more likely three-quarters of the planned million barrels.

Oil prices spiked because the accepted wisdom in OPEC circles is the world faces a 1.8 mbpd shortfall in coming months.

US oil prices jumped by almost 5 per cent, while the global benchmark Brent crude rose a bit over 3 per cent, not exactly the result the Presidential tweet was after.

The week ahead

There is very little in the calendar for the markets to worry about this week, although US inflation figures (Friday) have an impact on the Fed and its interest rate settings.

Locally, the only number of any interest will be private sector credit (Friday).

Credit conditions, particularly in housing have become "a thing" for the Reserve Bank, but not alarmingly so.

The May data is expected to show further slowing in lending to property investors, as well as owner-occupiers.

Business lending may also slow, but more due to a payback after a couple of strong months than business prospects suddenly falling off a cliff.

Diary