July Commentary

GLOBAL MARKETS

Investor sentiment was risk-friendly in June, as both equities and bonds gained. Equity leadership remains very narrow, with tech leading and ‘value’ equities struggling.  

US MARKETS

Continue to surge ahead

After a very strong May, the markets surged another 3.5%, with the tech heavy Nasdaq even stronger, gaining 6.0%. Nvidia briefly became the world’s largest company before falling back, posting an impressive 12.7% gain. US small caps lagged significantly, with the Russell 2000 declining by -1.1%. Economic data was generally weaker than ‘elevated’ expectations, though employment data continued to be robust. US CPI data was better than expected, re-igniting hopes for rate cuts. GDP expectations for the quarter moderated noticeably, but at levels significantly above what Europe has been experiencing.

Up  3.5% (US 500)

UK MARKETS

Lagged global equity markets

The UK relatively lagged global equities, with the FTSE100 retreating from May’s all-time high. The index was weighed down by a weakness in banks and mining. The more economically sensitive FTSE250 fell even further, dropping -2.1 %. With global equity market leadership driven by tech, the UK has minimal exposure to this sector. The election campaign has had minimal effect on market performance, mainly as the expected results have been priced in. A modest upgrade in 1Q24 GDP and encouraging inflation numbers have raised expectations for an August rate cut.

Down -1.4% (UK All Share)

EUROPEAN MARKETS

Election announcement in France riled the markets

European returns were dominated by politics, with the surprise election announcement in France unsettling the markets. Although the Stoxx 600 fell -1.4%, it was French equities that bore the brunt of the angst, with the CAC40 down -6.4% (a six-month low). Even the expected cut in European interest rates was insufficient to stem the losses. The more domestically focused small caps were in the eye of the storm, with small caps in France falling -16.1%, in what was clearly a sentiment-driven sell off. The euro declined versus major pairs except versus a weak Japanese yen.

Down -1.4% (Euro 600 Index ex UK)

JAPAN MARKETS

Markets rallied at month end

Having hit an all-time high back in March, Japanese equities have been more subdued of late, but staged a late month-end rally, nevertheless. As with other developed equity markets, traditionally defined ‘growth’ equities (from an investment style perspective) outperformed ‘value’. While markets were able to overlook some weak economic data, with 1Q24 GDP being revised down to -0.7%, actual economic growth over the last three quarters has been sluggish at best. Japanese 10-year yields were largely flat, albeit with higher volatility relative to previous months, and the yen continued its slide versus major currency pairs.

Up 1.3% (Japan Index)

Key Points

•  The yen continued to weaken against all major currencies, crossing above the 160 mark against the US Dollar, a new multi-decade low. Dollar strength overall, and diminishing expectations for tighter Japanese monetary policy, helped explain the yen’s weakness.

•  The euro struggled somewhat against the headwind of the political uncertainty in France, with the currency declining against both sterling and the US dollar.

•  The US dollar was strong against all major currencies, reflecting a relatively stronger US economic outlook.

•  Interest rate expectations continue to cause gyrations in the currency markets. The ECB cut rates ahead of both the BoE and the Fed. Expectations are that the BoE will be next, which provides a positive backdrop for the US dollar.

Key Points

•  In risk-adjusted terms, Credit and High Yield remained the best sectors to be in the bond market over the month. Volatility in government bonds remained elevated.

•  Better US inflation and some weaker macro data made treasury yields fall back, with US 10-year yields moving down.

•  The UK election had little impact on the gilts market. Better inflation data saw 10-year gilt yields drop from 4.32% to 4.17%.  

•  High yield and short duration credit delivered positive returns, and were made more attractive by their relatively low levels of volatility when compared to other areas of the fixed interest market.

•  Within emerging markets, hard currency bonds performed well and were positive, while local currency bonds struggled (relatively) on the back of strengthening developed-market currencies