Article

Monthly Market Roundup covering June 2022

Monthly Market Roundup
Overview
1
High inflation and a rising interest rate environment continue to take centre stage in a tricky month for global markets.
2
Europe, the US, Asia and the UK all retreated – and emerging markets once again outperformed developed ones.
3
China was one of the only markets to post gains, with positive sentiment over reopening and other internal and external drivers.

Global markets endured a difficult month in June with falls across the board. Inflation continues to be persistently high, with no sign of letting up for now. US and European markets retreated, though the latter saw some growth in gross domestic product (GDP). The picture in the UK is the most bleak with only Russia among the leading G20 economies set to perform worse. Emerging markets outperformed developed markets and there was more positve news from China, which posted gains.

European equity markets ended June as inflation, anticipated interest rate hikes and slow growth continue to take their toll. Inflation across the zone hit record highs (8.6) and in Spain, unexpectedly passed the 10% mark.

 

The European Central Bank (ECB) announced much anticipated plan to raise interest rates to help stem inflation. But a sharp fall in the flash purchasing managers’ composite index for the eurozone to 51.9 in June (a number above 50 indicates growth) will likely mean the ECB reconsider how quickly they put rates up.

 

In politics, French President Emmanuel Macron lost an absolute majority in the recent French legislative elections. Turkey stepped back it’s opposition to Finland and Sweden joining NATO, after their application to do so in response the Russian invasion of Ukraine.

It was another tough month for UK equities. Concerns of a possible global ecomonic downturn are growing as unwavering inflation pushes central banks to increase interest rates.

 

The Bank of England (BoE) increased its rate but by 0.25%, which was less than other banks. Inflation went up 0.1% in May from April, fuelling fears that it’ll reach 11% by the autumn.

 

Office of National Statistics (ONS) data showed the UK economy shrank between March and April and the cost-of-living crisis continues impact consumers. ONS data from May showed retail sales contracted. 

US equities slipped in June as investors braced for further interest rate hikes amid ongoing inflationary pressure.

 

Inflation hit 8.6%, year-on-year – yet another sign the it’s persistent, rather than transitory as initally believed by Fed Chair Jerome Powell. In response, the Fed hiked interest rates by 0.75%, the most aggressive rise since 1994.

 

There was a mixed macroeconomic picture. The labour market showed positive signs with the number of new jobs created exceeding expectations. On the other hand, industrial production showed smaller growth than the previous month at 0.2%.

Asian equities retreated amid the rising rate environment, which is in place to combat inflation. China was the exception and finished higher, buoyed by both external and internal drivers.

 

This included fiscal support, relaxing of country-wide mobility restrictions and positive signs related to US tariffs on China goods.

 

Elsewhere, Technology sectors in Taiwan and Korea were particularly weak. Equities in India faced a choppy month, while both Japan and Australia declined. 

Emerging markets (EM) fell in June, but they outperformed developed markets. Latin America finished with the worst performance in EM, with Colombia, Chile and Brazil the key detractors.

 

EM Asia was the most resilient region, notably supported by China, the only EM market to produce gains.

 

EM EMEA also fell, finishing lower than the broader region and behind the world. Like elsewhere, the major story for the month was dampened growth expectations and growing recession fears. Hungary, Qatar and Czech Republic were the most resilient, while Greece, Poland and South Africa were the key laggards.

The “inflation versus growth” conundrum was the backdrop for a challenging month for bond markets. Central banks in the US, UK and beyond all took action to tackle growing inflationary pressures.

 

Negative returns for US treasuries (bond yields move inversely to prices) rounded up a dismal first half of 2022 for the asset class with its H1 performance being the worst since 1788.

 

The outcome in European sovereign bond markets was not much brighter with UK gilts and German bunds returning -1.95% and -1.78% respectively in June. 

As COP27 draws closer, many countries are at risk of not meeting the goals set at the previous edition. This is as they try to balance ongoing energy security (because of the Russia-Ukraine conflict) concerns with climate ambitions.

 

Germany fears Russian gas supply could be disrupted going into winter and so has extended it’s coal plants past 2022. The UK, though ambitious in it’s plans looks set to fall short off the back of a review by the Climate Change Council (CCC).

 

Elsewhere, now that proxy voting1 season has ended, we’ve seen a surge in support of environment and social issues. Scrutiny over ESG matters is still high though and it remains to be seen whether the ambitious resolutions are too prescriptive and promote long-term shareholder value creation.  

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Footnotes

  • 1Proxy voting is where shareholders can vote on company operations and decisions to influence the way businesses are run.

Important information

  • Data as of 30 June 2022 unless stated otherwise.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

    Past performance is not a guide to future returns.                           

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.