Markets were strong during the week of 15 June, largely reversing the losses of the week commencing 8 June, as fresh economic stimulus offset the news of COVID-19 flare-ups across China and the US.
Beijing saw case numbers increase last week, forcing authorities to close schools and cancel flights in a bid to stem the outbreak across the capital and beyond. Meanwhile the country’s plans to buy more American farm produce, to comply with phase one of last year’s trade deal, boosted markets at the tail end of last week.
Wednesday 18 June saw the US report its biggest jump in new cases since early May, with nearly 24,000 people testing positive. The hotspots remain California, Florida and Texas.
Meanwhile, the US weekly initial jobless claims came in at 1.51 million last week, down from 1.57 million the week before. The report was slightly worse than economists forecast (1.3 million), which led to concerns that the labour market might not recover as rapidly as previously hoped.
The negative sentiment was partially offset by plans for a US$1 trillion infrastructure bill in the coming weeks to help further stimulate the US economy.
We also had US and UK retail sales numbers out last week, which surged by 17.7% and 12% respectively, albeit from very low bases.
The UK also released its latest inflation numbers, showing the consumer price index dropped to 0.5% year-on-year in May. Labour market data showed the number of people claiming work-related benefits increased 23% to 2.8 million in May.
To help the economy, the Bank of England voted on Thursday 18 June to pump an additional £100 billion into the UK economy. The funds will be released at a slightly slower pace than in recent months. Interest rates remain unchanged.
Boris Johnson met with senior EU officials to reinvigorate trade discussions between the two parties, and left in a more optimistic mood that an agreement could be reached with Brussels. The two sides will meet throughout July in the hope of progressing the deal, and agreeing the remaining key issues with regard to the alignment of business regulations and fishing rights.
Last, but not least, EU member states met on Friday 19 June to discuss the COVID-19 recovery fund. The leaders of the 27 states continue to be divided over the fund’s final size and terms, with the ‘Frugal Four’ reluctant to hand out grants. Officials remain hopeful a deal will be struck in July and also allow the bloc to concentrate on a Brexit deal.
Through to Thursday’s close, the MSCI AC World rose 2.9% in US dollar terms, and 3.7% in sterling terms on the week. If we had included Friday 18 June in these numbers, the increase would probably have been up to 2% lower. This is due to an event that takes place the third Friday of every quarter called quadruple witching, which sees all single stock and index futures and options expire at the same time, with more than 16 billion shares changing hands.
Returns across the larger equity markets were fairly similar, with Europe ex UK (+3.7%) and the US (+3.4%) the best, while most others underperformed, with the UK (+1.6%) at the bottom of the list. The US performance remains notable. Using the S&P 500 as an example, the market is now 21% higher than at the start of the quarter – its strongest quarter in more than 20 years – with technology stocks once again leading the charge.
In terms of style, growth (+3.69%) continues to outpace value (+2.20%), while small caps (+2.97%) and large caps (+2.93%) produced similar returns. Year-to-date, however, the difference between growth (+12.08%) versus value (-10.29%) remains significant since investors have favoured robust companies during these troubled times.
Sector-wise, the strongest performance was from IT (+4.3%) and healthcare (+3.4%), which continues to do well. The weakest sectors were energy (+1.4%), real estate (+1.5%) and financial services (+1.7%).
Fixed income helped our portfolios’ returns. While global government bonds were relatively flat, credit spreads generally narrowed and, as such, our duration exposure didn’t create issues and our corporate bond exposures added value.
Our property investments continue to struggle, reflecting the ebbs and flows of buyers’ and sellers’ trading patterns. There may be a light at the end of the tunnel, however, if the UK government finds a way to safely reopen shops, restaurants and pubs etc. and increase capacity through a relaxation of the two metre social distance guidance.
Our alternative investment trusts put in a solid enough performance again, despite the lack of any new news, and testament to their strong underlying fundamentals.
One point to note is the poor performance of most of the UK’s asset classes. Investors’ concerns include the large number of COVID-19 deaths, a very weak economy, and Brexit, where it seems the UK government is determined to go to the wire. As such, the value of sterling weakened, the UK equity market was at the back of the pack, and gilts (UK government bonds) underperformed other major sovereign bond markets.
The main highlight for this week will be the flash purchasing managers’ indexes (PMIs) for the month, published on Tuesday 23 June, with manufacturing, services and composite PMIs due for economies around the world.
On Wednesday 24 June, the International Monetary Fund will be releasing its latest economic forecasts. And on Thursday 25 June, the US weekly initial jobless claims will once again be closely watched, particularly since the latest numbers have showed a much slower decline than was expected.
The European Central Bank will also be releasing the minutes from their latest meeting.
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