Market Commentary – July 2022

 

GLOBAL MARKETS

Most asset classes remained in high volatility territory

Central banks continue to tighten monetary policy to cool inflation, even at the risk of tipping economies into recession

 

US MARKETS

US equity markets encountering inflation headwind

The US equity market was down over 8% for the second month this quarter, a month in which the Fed raised interest rates by a further 75bps. US first-quarter GDP was revised down, but it was the sharp downward correction in consumer spending which unnerved investors, with US inflation showing little sign of abating. The May monthly US CPI jumped to 1.0% from 0.3% the previous month, pushing the year-on-year CPI to 8.6%, with the Purchasing Managers Indexes (PMI) steadily falling.

Down -8.4% (US 500)

 

EUROPEAN MARKETS

European markets deal with ECB’s delayed inflation response

European equity markets fell on the back of annual CPI inflation in the area hitting 8.6%, driven by record energy prices. The ECB’s Lagarde sent a clear signal that rate rises will begin in July, their first rate rise in 11 years. Europe’s dependency on Russian gas supplies remains a key risk, with the added concern that Russia may begin to ration or reduce gas supplies.

Down -8.2% (Euro 600 Index)

 

UK MARKETS

Low consumer confidence contributes to falling markets

UK equity markets were down heavily, particularly in mid-caps. The Bank of England raised rates by a further 25bps to 1.25% and UK CPI YoY inflation reached 9.1%. British manufacturing (as shown by Manufacturing PMI) slowed to a two-year low, and consumer confidence is at a record low. Rising food and energy costs, coupled with rising borrowing costs such as mortgages, means the average UK household has seen negative wage growth.

Down -6.2% (UK All Share)

 

ASIAN MARKETS

China’s lifting of restrictions could not carry emerging markets

Along with other markets, emerging market equities fell on the back of recession worries. China’s easing of restrictions improved market sentiment for the region at month-end, and helped to lift commodity-linked stocks. An increased production and output from China could be an important prop for the rest of the world. China export orders rose ahead of expectations.

Down -7.1% (Asia Index)

 

 

Key Points:

  • Renewed fears of a global recession hit markets and there was a general sense of risk aversion.
  • Recession worries seem to be replacing inflation as the primary market driver, as markets digest the implications of slowing growth while consumers learn to live with higher inflation.
  • Volatility in equity and fixed income markets remains high due to inflationary and recessionary concerns, along with continuing geopolitical risks.
  • Over the quarter, consumer discretionary and technology stocks were the biggest losers, falling 23.8% and 21.8% respectively. Over the first six months of the year, energy was the biggest riser, up 24.0%.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Key Points:

  • The risk-off investor sentiment helped strengthen the US dollar, which rose against Sterling, Japanese Yen and Euro.
  • Sterling weakened against the US dollar and the Euro on the back of weak economic data. The British economy contracted further, where the gross domestic product (GDP) was -1.8% in April from -0.1% the previous month.
  • The Euro was supported against GBP and JPY by a more determined ECB, who finally looks to be tackling inflation. At an emergency meeting, the ECB’s Lagarde hinted at starting interest rate rises in July.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

Key Points:

  • Investor nervousness about high inflation, slowing growth, and rising borrowing costs, was not enough to reverse losses in US Treasuries and UK Gilts as volatility remains high.
  • Over the first two quarters of the year, bonds witnessed a fairly consistent sell-off.
  • US 10-year Treasury yield ended the month at 3.01%, while the UK 10-year Gilt yield closed the month at 2.23%, down from a peak of 2.65% within the month.
  • Most fixed income sectors, even index-linked bonds, endured heavy falls in the month.
  • Corporate bonds and high yield bonds were worst off; the S&P 500 Investment Grade Corporate Bond Index fell 2.6% while the Barclays Global High Yield Bond index was down 4.2%.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Disclaimer: The information contained in this report is for illustrative purposes only and should not be construed as a solicitation nor offer, nor recommendation to acquire or dispose of any investment. Specifically, the share class used to create the illustrations may not be available on all platforms nor be suitable for individual investors. This report was produced by Collidr Research (“Collidr”) for Affinity Integrated Wealth Management (AIWM) and while AIWM and Collidr use reasonable efforts to obtain information from sources which they believe to be reliable, neither AIWM nor Collidr make any representation that the information or opinions contained in this report are accurate, reliable or complete. The information and opinions contained in this report are subject to change without notice. Model returns are calculated using the most appropriate share class of the underlying funds, having regard to the illustrative nature of the report, with all income being reinvested. As a result, real portfolio performance may vary from model performance. Where model portfolio histories are shorter than three years, historic model returns are substituted prior to inception date with returns from an Collidr performance benchmark. This benchmark is constructed from the average returns of all Collidr portfolios with similar risk profiles that existed during that time. The value of investments and the income from them can go down as well as up and past performance is not a guide to the future performance. Affinity Integrated Wealth Management is a trading style of Buryfield Grange Limited, Buryfield Grange Life Planning Limited and Affinity Integrated Wealth Management Ltd. ‘Buryfield Grange Limited’ is authorised and regulated by The Financial Conduct Authority. Not all services provided by Buryfield Grange are regulated by the Financial Conduct Authority. ‘Buryfield Grange Limited’ is registered in England and Wales at Inspire House, 20 Tonbridge Road, Maidstone, Kent, ME16 8RT. Company  registration number 4568338. Collidr Research is a trading name of Collidr Technologies Limited, registered in England and Wales at 34 Southwark Bridge Road, London, SE1 9EU. Company registration number 09061794. Data Providers: Bloomberg L.P. and Collidr.

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