Global equities rose 2.3% in June as Growth and Quality styles led the market higher (Value outperformed in the previous 6 months). The easing of Covid-19 restrictions in developed markets has led to a rise in demand which supply is struggling to meet, leading to supply chain issues and pricing pressures. Central banks view the recent rise in inflation as a transitory event that will decline to the long-term trend. Markets in June followed this narrative and bond yields declined.
The US Treasury 10-year yield fell to 1.47% from 1.61% at the start of the month. The economic data improved over the month, but not too much to worry investors that the central banks will tighten monetary conditions anytime soon. This provided support for US Growth stocks (+6.7%) to lead the S&P500 to a 2.3% gain over the month. Information Technology (+6.9%), Consumer Discretionary (3.8%) and Real Estate (+3.1%) were the leading performing sectors alongside Energy (+4.6%), which benefitted from the 9.3% gain in the Oil spot price. Materials (-5.4%) and Financial (-3.0%) sectors declined following strong gains over recent months.
The Continental Europe equity index (+2.0%) performed well over the month, resulting a 3 month return of 8.4% for the regional index. Although the eurozone economy contracted by 0.6% in the first quarter, leading economic indicators, such as purchasing managers’ index business surveys have reached multi-year highs in many regions. Germany (1.3%) was the best performing country index, but it was the Growth (3.6%) stocks across the region which led the market.
Andrew Bailey insists the Bank of England (BoE) is not complacent to the effects of inflation but acknowledged the BoE had underestimated pace of rebound in growth in the economy. The BoE expects inflation to rise to 3% later this year however Andy Haldene, the outgoing BoE economist believes inflation will hit 4% by Christmas. The large cap FTSE 100 index (+0.4%) outperformed the mid cap FTSE 250 (excl. Investment Trusts) (-1.8%) over the month. Healthcare (+6.0%), Energy (+5.8%) and Technology (+5.1%) were the top performing sectors, with Financials (-2.8%), Materials (-2.9%) and Defence (-3.6%) the laggards. The Materials sector was affected by the fall in metal pricing, with Gold spot giving up most of its gains in May, declining -7.0% in June. Copper too retraced its recent gains falling -8.1% over the month to $4.30 (per Lbs).
Asian (+0.9%) and Emerging Markets (+0.8%) indices continued to be restrained over the month. Korea (+2.8%) and India (+1.6%) were the best performing markets with China (0.3%) and Hong Kong (-1.8%) laggards amid continuing signs that Chinese policy makers are trying to clamp down on the shadow banking system and too much speculation.
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