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 09/06/2023.

The US saw an unexpected slowing in the services sector as the Institute of Supply Management (ISM) gauge of prices paid for services came in at 50.3 for May, a three-year low and just above the 50 mark that separates expansion from contraction. The manufacturing sector has already been slowing so these could be potential signs the impact of monetary tightening is beginning to come through. Weekly jobless claims jumped to 261,000, well above expectations and the highest level since late 2021, but economists cautioned against reading too much into the figure given the volatility of this report. Speculation remains over whether the Federal Reserve (Fed) will pause rate hikes at its next meeting on 14 June.

In the UK, there was more volatility in the housing market as the UK’s two largest lenders, Halifax and Nationwide Building Society, both reported a fall in house prices for April, suggesting the market had not seen its traditional spring boost.

The euro area economy contracted for two consecutive quarters according to revised data, meaning it has fallen into a technical recession. However, European Central Bank president Christine Lagarde reaffirmed the central bank’s hawkish stance on interest rates, stating “future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target”. A 25 basis point hike in interest rates is expected in the ECB meeting on 15 June.

The Bank of Canada delivered an unexpected 25 basis point rate hike following a similar surprise from the Reserve Bank of Australia the previous day.

In corporate news, Apple unveiled its new ‘mixed reality’ headset Vision Pro, which will be available early next year with a sticker price of US$3,499. This is the company’s first major product launch for a number of years.

In other news, the US Climate Prediction Centre confirmed that El Niño conditions had emerged in May, with the latest weekly indices above the threshold for an El Niño event. This can lead to a higher frequency of natural disasters like dry, hot conditions, which have negative effects on harvests and food supplies and risk putting renewed upward pressure on food prices and inflation.

In the market roundup, developed market equities (+2.6%) continued to outperform emerging markets (+1.5%) over the last 30 days, with artificial intelligence tech stocks doing most of the heavy lifting. In terms of style, growth (+4.3%) outperformed value (+0.6%) over the month, despite the opposite being true last week over the short term. Information technology (+8.8%) retained its position as the best performing sector over the month, while consumer staples (-4.8%) continued to be the worst.

In the fixed income market, yields have been volatile but within a relatively constrained range due to investor speculation over the Fed’s next move on interest rates.

The news in the commodity market focused on the increase in oil prices over the week due to Saudi Arabia’s promise of a production cut in July, following the meeting of OPEC+ in Vienna earlier this month.

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?

We remain defensively positioned as the tightness in monetary policy and credit conditions continue to impact overall activity within economies around the world.

In equities, the shift upwards in yields has led to underperformance in some of our quality managers over the short term,  but our value managers, such as Dodge & Cox Global Stock Fund, have performed well, supported by oil and strong energy sector performance.

In terms of fixed income, the longer duration sovereigns have come under a bit of pressure due to recent rising yields, although longer duration has been the place to be over the year to date.

It remains a good environment for real assets although not much to report in terms of net asset value releases this week. We just wanted to highlight the relative outperformance of our defensive areas such as gold and ATLAS Global Infrastructure which have been the stand-out performers on a year-to-date basis.

In the current uncertain environment, alternative strategies continue to provide diversity from the traditional asset classes of equities and bonds. Private equity remains a driver of capital growth and total return and has provided a good level of support short term as well as on a year-to-date basis. In particular from Oakley Capital Investments where underlying earnings have remained strong and resilient.

What’s happening this week?

13 June • US Inflation Rate | 14 June • UK Gross Domestic Product | 15 June • EU ECB Interest Rate Decision