What’s happened in markets?

FTSE All Share 1.72 1.68 7.72 12.54 23.37 2.99 7.80
Euro Stoxx 50 0.99 2.20 9.12 18.21 31.51 10.13 11.67
S&P 500 2.76 2.33 9.88 14.78 40.99 18.15 18.23
Japan Topix 0.83 2.26 1.33 9.84 28.41 6.81 12.77
MSCI Asia Pac. 1.28 2.08 5.63 6.53 39.34 12.34 15.71
MSCI Emerg. Mkts. 1.42 2.85 7.73 7.75 40.50 11.72 14.35
Jo’burg All Shares 0.93 0.29 2.69 13.13 26.10 9.28 8.42
UK Gov’t Bonds -0.64 0.36 -0.34 -6.15 -7.12 2.99 2.36
US Gov’t Bonds -0.57 0.15 0.81 -3.02 -3.54 4.57 2.18
Global Corp. Bonds -0.47 0.68 1.84 -1.35 3.42 6.65 4.79
Emerg. Mkt. Local Currency Bonds 0.63 0.01 3.75 -3.11 6.00 4.87 4.15

Figures in the respective local currencies as at the end of trading on 25/6/2021.

While headlines on the pandemic still pervade, and particularly due to the Delta variant, economic growth seems to be reasserting itself more strongly. The data backing up this view was the flash purchasing managers’ index (PMI) numbers, which aim to flag whether business conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. As such, the direction being seen by these managers is one of expansion, with the stellar number that of the Eurozone, where the composite PMI rose to a 15-year high of 59.2 in June. The increases came against slight drops in the UK as the composite PMI for June came in at 61.7, down slightly from a record high of 62.9 in May, and down more in the US, which fell from 68.7 in May to 63.

The reason for the US figure was noted as inflation, which, against the Federal Reserve’s (Fed) yardstick of US core personal consumption expenditure, increased 3.4% year-on-year, its largest annual increase since 1992. This prompted the latest accommodative (aka dovish) statement by the chair of the Fed, Jay Powell, that it would not act “pre-emptively” on “the possible onset of inflation”, but rather “will wait for actual evidence of actual inflation or other imbalances”.

Positive news for the US economy came in the form of the bipartisan US$1.2 trillion agreement to renew the nation’s physical transport (e.g. roads, bridges and rail) and digital (broadband) infrastructure, as well as help stimulate the economy. And while the bill fell short of the inclusion of climate change and social support, President Joe Biden plans to pursue his ‘human’ priorities through a bill passing through the senate using the reconciliation process, which only requires Democrats voting.

The Bank of England also left rates unchanged and voted 8:1 to maintain the current bond purchases programme as is. And while the previous meeting’s minutes highlighted more dissent than just that of the chief economist, Andy Haldane, as the inflation rate is set to exceed 3% in the coming months, the view remains that the central bank should avoid “premature tightening”, as it toughened its language on the need to maintain stimulus.

In markets, developed markets (+2%) performed in line with emerging markets (+2%) over the past 30 days. Style-wise, growth stocks (+4%) crept back into favour versus value (0%) versus the same period 30 days prior. Energy (+6%) and information technology (+5%) were the best performing sectors on a 30 day basis, versus materials (-2%) and utilities (-2%). Small capitalisation stocks posted +2% returns for the past 30 days, matching the +2% for large capitalisation stocks.

Latest Consensus Forecast
UK GDP (QoQ) -1.5  -1.5
UK PMI 61.7
UK CPI (YoY) 2.1  –
EU GDP (QoQ) -0.3  –
EU PMI 59.2
EU CPI (YoY) 2.0  –
US GDP (QoQ) 6.4
US PMI 64.0 63.5
US CPI (YoY) 5.0  –

What’s happened in portfolios?

On the fixed income front, we are pleased that although yields have been falling over the short term, our overweight tilt to credit risk has helped offset our underweight bias to duration risk.

Among our alternative investments, property remained solid but saw a relatively quiet week for an asset that we see as a valuable way to shield portfolios from inflation risk. Meanwhile, our second strand to the music rights investment arena – Round Hill Music – announced plans to launch a C share class that it hopes will allow it to tap into a US$120 million investment pipeline.

What’s happening this week?

30 Jun • UK Gross Domestic Product | 1 Jul • EU Unemployment | 2 Jul • US Nonfarm Payroll