June Commentary
GLOBAL MARKETS
Slowing economic growth raises investors’ fear of recession and could throw central banks off-course from planned rate rises If wage growth remains high against a backdrop of surging energy prices, inflation could become entrenched.
US MARKETS - Markets dealing with the ramifications of rate increases.
The Federal Reserve’s latest interest rate rise was the largest rise in borrowing costs since 2000, as it starts to reduce its $9tn balance sheet. The US dollar pulled back and the yield on 10-year US Treasury fell to 2.8% from its mid-May highs of 3.0%. GDP fell to -1.4% in Q1 from 6.9% in the previous quarter, and inflation remains a cause for concern, with annual CPI at 8.3% and core inflation at 6.2% in April. Up 0.0% (US 500)
EUROPEAN MARKETS - The war in Ukraine remains the dominant issue.
With the war in Ukraine showing no signs of a resolution, and international aid agencies helping to evacuate civilians from various cities, Europe imposed a seaborne embargo on Russian oil. However this had little effect on gas prices. The price of natural gas is up over 200% year to date. Food price inflation will likely continue given the situation in Ukraine and Russia, where wheat crops have not been planted and fertiliser ingredient prices have surged respectively. Eurozone annual CPI reached 8.1% in May, to which ECB President Lagarde hinted at the possibility of rate increases in July. Down -1.6% (Euro 600 Index)
UK MARKETS - FTSE100 performed well due to energy exposure.
Annual UK CPI came in at 9.0% due to spiralling electricity and oil and gas price rises. The FTSE100 was the best performing equity market, attributed to its heavier weighting in energy stocks. The Bank of England raised interest rates to their highest level since 2009, but still warned of a possible recession. As focus turned away from inflation to slowing growth, gilts had their best performance since March 2020. UK GDP rose by 1.3% in the first quarter 2022, vs -0.9% in Q4 21.. Up 0.4% (UK All Share)
ASIAN MARKETS - China’s COVID-19 approach continues to impact the markets.
China spent most of May in lockdown as the government continued with its zero-Covid policy. There was some gradual reopening at the end of the month, but any new outbreaks would likely result in further shutdowns, impacting the economy. China’s GDP is expected to slow down from the annual 8.1% growth recorded in 2021. There were outflows in Asia/EM equities as investors were unnerved about quantitative tightening, which may depress Asian currencies. However, some peripheral markets, such as Taiwan, Thailand and South Korea, saw inflows. Up 0.2% (Asia Index)