What’s happened in markets?

FTSE All Share 0.15 0.80 3.79 12.68 25.14 2.35 6.56
Euro Stoxx 50 -0.34 -0.57 3.72 16.77 27.85 8.69 10.89
S&P 500 0.42 3.68 6.20 17.23 40.77 18.35 17.65
Japan Topix -2.25 -2.19 -2.29 7.14 25.46 6.22 12.08
MSCI Asia Pac. -2.52 -3.34 -1.89 1.95 22.78 10.90 13.99
MSCI Emerg. Mkts. -2.59 -3.59 -0.14 3.21 24.70 9.81 12.64
Jo’burg All Shares 0.13 -1.82 -0.89 13.48 22.17 7.89 8.65
UK Gov’t Bonds 0.56 1.05 1.58 -4.98 -5.63 3.21 1.87
US Gov’t Bonds 0.44 0.75 1.91 -1.99 -3.10 4.85 2.11
Global Corp. Bonds 0.28 0.96 2.25 -0.47 3.07 6.81 4.55
Emerg. Mkt. Local -0.56 -2.78 1.17 -4.39 4.04 4.02 3.38

Figures in the respective local currencies as at the end of trading on 9/7/2021.

In UK news, the government announced that “Freedom Day” and the removal of all COVID-19 restrictions will go ahead on Monday 19 July, although Prime Minister Boris Johnson has hinted at the possibility of some “extra precautions”. Despite the increases in COVID-19 cases and hospitalisations, there are some reports that the pace of increase may be slowing. UK growth was weaker than expected with gross domestic product expanding by only 0.8% in May, down from 2.3% in April. The economic gains made from the reopening of the hospitality and leisure sectors were offset by the retail, construction and manufacturing industries, which are struggling with labour shortages, supply chain delays and global microchip shortages.

In the US, the ISM non-manufacturing purchasing managers’ index (the measure of the US services sector) came in at a weaker-than-expected 60.1 for June (versus the 63.5 expected). But, it still remains well in expansion territory. The minutes of the Federal Reserve’s (Fed) open market operations committee meeting in June revealed a heated debate over whether the time was right for the central bank to start tapering asset prices – and to reduce its US$120 billion a month of emergency debt purchases.

In the Eurozone, the economy continued to open up from COVID-19 related restrictions. The composite purchasing managers’ index hit a 15-year high at 59.5 in June, up from 57.1 in May. This latest strengthening of the index reflects increased levels of output across both manufacturing and service sectors. Meanwhile, following a strategic review, the European Central Bank adjusted its inflation target to 2%, the first change since 2003. The new target is described as symmetric, which means the central bank is required to respond when inflation falls below or above the target. This strategy change is intended to give the policymakers more flexibility to keep interest rates at historic lows for longer.

Japanese equities have continued to underperform with a worrying increase in COVID-19 cases and a relatively slow uptake of vaccinations. With the Tokyo Olympics due to start on Friday 23 July, the Japanese government announced that the games will go ahead but without spectators, as Tokyo will be under a state of emergency.

In markets, developed markets (+2%) outperformed emerging markets (-4%) over the past 30 days. Style-wise, there was oscillation between growth and value, with growth stocks (+4%) retaining a lead over value (-2%) versus the same period 30 days prior, with information technology (+7%) leading the charge. Financials (-3%) and energy (-4%) lagged. Large capitalisation stocks posted +2% returns for the past 30 days versus the -1% for small capitalisation stocks.

In terms of fixed income, we have seen a slight reversal where we see falling sovereign bond yields which have helped longer dated credit, and, likewise, investment grade credit has outperformed high yield, in part due to the greater interest rate sensitivity in that part of the market.

In other market trends, the US Dollar has continued to strengthen and oil has traded higher, partly as a result of the OPEC+ talks falling through.

Latest Consensus Forecast
UK GDP (QoQ) -1.6
UK PMI 62.2
UK CPI (YoY) 2.1  2.2
EU GDP (QoQ) -0.3
EU PMI 59.5
EU CPI (YoY) 1.9 1.9
US GDP (QoQ) 6.4
US PMI 60.1
US CPI (YoY) 5.0 4.9

What’s happened in portfolios?

The recent oscillation within the growth and value space has emphasised the importance of having a diversified approach within equities. Our balanced positioning within equities remains important.

On the fixed income front, bond yields have fallen slightly and our short duration bias has dampened performance slightly. But solid gains in investment grade credit and our alternatives have helped to offset this. The recent shift to further tilt portfolios to these positions allows us to mitigate duration risk for very little reduction in yield.

In property, Impact Healthcare announced it had agreed a new revolving credit facility, which restructures their finances slightly to possibly look to tee up some investments later this year.

What’s happening this week?

14 Jul • UK Retail Price Index | 15 Jul • Fed Chair Powell Testimony | 16 Jul • EU Balance of Trade