What’s happened in markets?

FTSE All Share 0.16 -1.46 -3.02 3.80 3.36 10.11 3.21
Euro Stoxx 50 -0.17 2.01 4.40 17.06 18.04 14.75 7.96
S&P 500 1.88 4.17 8.04 12.35 4.29 13.37 11.29
Japan Topix 1.72 5.17 10.79 16.86 16.41 13.90 7.09
MSCI Asia Pac. 1.27 0.60 0.08 2.87 -4.11 2.84 0.06
MSCI Emerg. Mkts. 1.26 1.33 1.28 3.90 -4.22 3.38 0.04
Jo’burg All Shares 0.71 -0.42 1.03 7.35 13.35 18.24 10.21
UK Gov’t Bonds 1.76 -3.43 -1.39 -2.78 -15.36 -11.25 -4.02
US Gov’t Bonds 0.73 -1.56 2.70 1.99 -2.32 -4.54 0.60
Global Corp. Bonds 1.00 -0.94 2.54 2.92 -1.02 -2.30 1.50
Emerg. Mkt. Local 0.82 0.27 3.90 5.10 3.77 -1.80 0.18
Figures in the respective local currencies as at the end of trading on 02/06/2023.

Market focus over the week of 29 May was on US jobs growth, which came in almost twice as strong as forecast at 339,000 in May, against expectations of 195,000. The unemployment rate, however, rose slightly to 3.7%, from 3.4%, and coupled with a slowdown in wage growth left opinions divided on what the Federal Reserve (Fed) might do with interest rates at its meeting in June. The next big economic indicator will be the US consumer price index (CPI) report for May due on 13 June. The Fed’s Beige Book, a survey which reflects comments and views from contacts outside the Federal Reserve System, indicated that while the US economy was indeed slowing as hiring and inflation eased, there were still signs that the economy remained too hot in certain areas. In more positive news, the US Senate finally passed the debt ceiling agreement in a 63-36 vote on Thursday 1 June.

In the UK, inflation remains stubbornly high as the CPI rose by 8.7% in the 12 months to April 2023. Although down from 10.1% in March, the fall was less than expected causing gilts to plunge and putting further pressure on the Bank of England to take further action. Britain and Italy now have the joint highest rate of inflation among the Group of Seven advanced economies.

Eurozone inflation for May eased more than expected and fell to a 15-month low of 6.1%, down from 7.0%. This enabled bond yields in Europe to rally, especially towards the end of May. The euro area unemployment rate fell in April to its lowest level since the formation of the single currency, coming in at 6.5%. However, European Central Bank (ECB) President Christine Lagarde remained hawkish over interest rates stating that inflation was still too high and further monetary tightening was in the pipeline. Although most policymakers at the ECB’s May meeting voted to slow the pace of rate increases to a quarter point.

There was weaker news out of China as its manufacturing purchasing managers’ index (PMI) came in at 48.8 (against 49.5 expected), the lowest reading since December 2022, while service sector activity expanded but at the slowest pace in four months in May.

Meanwhile, Saudi Arabia (the world’s top oil exporter) agreed to deliver an additional production cut of one million barrels per day in July. This is the biggest reduction in years in a bid to prop up prices following a meeting of the influential Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, in Vienna on 4 June.

In corporate news, both Salesforce and Zoom reported higher than expected earnings and promoted their investments in the development of artificial intelligence.

In terms of market roundup, developed market equities (+3.0%) were ahead of emerging market equities (+1.8%) over the last 30 days, as the weak economic data from China dented sentiment. In terms of style, growth oriented sectors (+5.6%) outperformed value stocks (+0.1%), with information technology stocks continuing to benefit from the growing investment in artificial intelligence (AI). Information technology (+11.6%) was by far the best performing sector over the last 30 days, while consumer staples (-4.5%) was the worst.

In fixed income markets, as bond yields rose over the month, global government bonds (-1.3%) underperformed and high yield (+0.2%) remained flat. Although there has been some variation in government bond markets through May, as US yields moved higher but European yields moved lower, following the better-than-expected inflation release. Meanwhile UK bond yields moved much higher on the back of the recent worse-than-expected UK CPI figure.

In terms of commodities, the traditionally safe haven of gold (-3.8%) underperformed while the more cyclical oil (+5.1%) turned positive after the US Senate gave the green light for the debt-ceiling bill and in anticipation of last weekend’s OPEC+ meeting in Vienna.

Latest Consensus Forecast
UK GDP (QoQ) 0.1
UK PMI 54.0 53.9
UK CPI (YoY)  8.7  –
EU GDP (QoQ) 0.1 0.0
EU PMI 52.8 53.3
EU CPI (YoY) 6.1  –
US GDP (QoQ) 1.3  –
US PMI 51.9 52.4
US CPI (YoY) 4.9 4.1

What’s happened in portfolios?

In equities, our holding in the S&P 500 closed last week at a nine-month high, up 0.5%. It was helped by the agreement on the US debt ceiling, the prospect the Fed might finally pause its rate hikes at the next meeting, and signs that inflation is still falling. Year to date the S&P 500 is up a positive 10% and our quality defensive managers, iShares Core S&P 500 ETF, Fundsmith Equity and NIF Global Equity were also up around 10% over the period. They were boosted by their holdings in tech stocks which are benefiting from the growth in AI, such as Microsoft, Alphabet, Amazon and Meta.

Last week in fixed income markets, PIMCO Global Investment Grade Credit was helped by its 30% exposure to Europe, as government bonds rallied there following the lower-than-expected CPI data. Over the year to date, longer duration areas continue to outperform as yields have fallen.

In terms of real assets, our indirect holdings in property and infrastructure followed equities lower over May but remained in line with their benchmark indices. Interestingly, our more defensive direct holdings in care homes and 3i infrastructure outperformed.

In our alternative strategies, Princess Private Equity announced it was to resume new investment activity, targeting high quality, mid-market companies.

What’s happening this week?

8 June • EU GDP Growth Rate | 8 June • US Initial Jobless Claims | 13 June • UK Unemployment Rate