Market Commentary – June 2022

 

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)

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 

  • In the US, central bank policy error risk remains high as the Fed alternates between hawkish (at start of the month) to more dovish (toward month end), with its focus shifting from inflation to poor economic data.
  • Basic materials, oil & gas and construction materials sectors performed well. The S&P 500 Energy Sector is up 14.5% in May alone, while the tech heavy Nasdaq was down 1.9%.
  • In the UK, the Bank of England’s Andrew Bailey hinted that the economy will likely shrink due to double digit inflation, causing a temporary dip in gilt yields mid-month.
  • Inflationary pressures look likely to continue across the globe due to spiralling energy and gas prices, as well as food prices (from a shortage of crops due to the war in Ukraine and a surge in energy intensive fertiliser ingredients needed for crop growth).
  • While central banks may be able to control some elements of inflation, with interest rate rises and quantitative tapering, the energy component may prove more difficult to influence.

 

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 US Dollar retreated from its highs as investors paused to take stock of slowing global economic growth data.
  • Sterling was stronger against the US Dollar after the UK posted 3.7% unemployment for Q1 22, its lowest level since 1974.
  • The Japanese Yen was strong versus the US Dollar and Sterling. Having lagged the US and Europe on economic reopening, the Nikkei is up 1.6% in May against a flat US equity market. Since the middle of March, the Nikkei is up 8.4% versus 2.4% for the S&P500.
  • The Euro was stronger against most major currencies, despite the Euro almost reaching parity with the US Dollar mid-month, as the ECB changed from its loose monetary policy to fall in line with the Fed and the Bank of England.

 

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

  • US Treasuries and global corporate bonds were up while global high yield fared poorly. UK gilts were down nearly 3%, wiping £150bn off the value of Gilts since the beginning of January 2022.
  • The US 10-year Treasury, UK 10-year Gilt, and German Bund yields fell below levels of 3.0%, 2.0%, and 1.0% respectively in the month. Yields of US 10-year Treasuries and UK 10-year Gilts ended the month at 2.84% and 2.10% respectively.
  • Yields continue to gyrate as investors try to determine whether rising inflation or slowing growth will drive the markets. In April, the annual rate of CPI fell to 8.3% from 8.5%, which, to some, is a sign of inflation peaking in the US.
  • Seen by some as a hedge against inflation, US Treasury Inflation Protection (TIPs) notes have seen outflows for three consecutive weeks.

 

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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