UK- June proved to be gloomy for the UK economy, the pound and the High Street.
- UK factory output dropped to its lowest level since September 2009.
- Interest rates remained on hold at 0.5% but the minutes from the MPC meeting showed a 7-2 split on decision. New member, Ben Broadbent, voted for rates to stay on hold rather than the increase favoured by his predecessor. The minutes suggest that inflation is seen as less of a threat and means that expectations of the date for the next rate hike have moved out to 2012.
- The Bank of England Monetary Committee observed that the economic weakness may “persist longer than expected” and for the first time since last October the MPC discussed the possibility of resuming QE at its June meeting.
- The economic malaise was reflected in a sharp fall in Sterling which plunged to a 15 month low relative to the Euro.
- Shoppers stayed away from the High Street over worries over jobs and rising prices. Retailers including Thornton, Habitat, Comet and Carpet Right announced they would close some outlets.
- Mining stocks were among the few winners in June, rallying modestly as data from China showed a sharp fall in Copper stockpiles promoting hopes that metal prices might start to rise.
US- The US equity market recorded losses across all sectors in June. In an uncertain environment, the “risk on, risk off” pattern of trading continued with markets demonstrating risk averse sentiment. Consumer discretionary and industrial stocks saw the smallest declines while financials and IT stocks were the biggest detractors
- Sentiment was depressed further by news that house prices had slumped to their lowest levels since 2002. In addition unemployment ticked back up to 9.1% its highest level since December
- Speculation began that QE may be extended, but comments from Ben Bernanke appeared to rule this out
- Stocks climbed in the last week of June on signs that manufacturing was rebounding from higher commodity costs and shortages of parts caused by the earthquake in Japan
EUROPE- European equities performed poorly for much of the month and ended June in negative territory in local currency terms
- The Greek debt crisis was the only story that really mattered to European investors, with markets reacting to each new development from Athens and Brussels. The market rallied in late June when Greece’s parliament passed the austerity measures needed to persuade the EU and IMF to release the next tranche of its bail out agreement
- Shares in France’s three largest listed banks plunged after Moody’s threatened them with downgrades because of their exposure to Greek debt. Similarly Italy’s banking sector suffered as Moody’s warned that Italy’s credit rating could be downgraded and changed its outlook on 13 Italian banks to negative
ASIA- There was a significant divergence between Asian markets. India and Malaysia gained, but shares in China and Thailand fell sharply. Inflation concerns in China remained a dominant issue
- Chinese food prices surged by 11.7% triggering social unrest in Southern provinces which prompted fears that Beijing might step up its monetary policy
- However inflation fears eased somewhat as the month progressed with the Chinese premier declaring victory over inflation, easing fears of a monetary policy crackdown
- Meanwhile Samsonite of the US and Italy’s Prada showed their confidence in Asian markets by opting to list shares in Hong Kong rather than New York or Milan
EMERGING MARKETS- Markets produced mixed results at Country level although heightened risk aversion resulted in a negative overall result
- Brazil’s stock market fell as the Central Bank raised borrowing costs for the 4th straight month in a bid to contain inflation. Brazilian base rates are now 12.25% and may have to rise further
JAPAN- Japan was one of the better performing markets as June brought much more encouraging data which pointed to a decent economic recovery
- Retail sales rose and industrial production jumped by 5.7% led by the auto sector as supply chains were restored
- However there is negative news still coming out related to the earthquake’s impact. Toyota indicated their opening profits during the current financial year could fall by 35% compared with last year.
- The political situation remains unstable with Prime Minister Kan only surviving a no confidence motion by promising to step down once the post earthquake crisis abates
FIXED INTEREST- Fears that Greece would default on its debt was the main fear across markets
- S&P slashed Greece’s credit rating to CCC, making it the lowest-rated Government debt in the World. However there was a sharp profit taking from Government Bonds towards the end of the month as Ben Bernanke disappointed the Treasury by saying that QE3 was unlikely
- In a market wary of taking risk, June was a poor month for corporate bonds which underperformed Government Bonds, although they rallied in the final days of June when Greece announced a new austerity package
Investment Seminar FeedbackDuring the summer months the telephone conference and fund manager investment forums go rather quiet but our diaries will start to fill up next month as we head towards the Autumn. ConclusionInvestment markets are volatile with the expression “risk on risk off” gaining popularity. The storm clouds over the Euro, Middle East and economic data from the United States continue to weigh heavily on sentiment while the strength of many corporate balance sheets provides cause for optimism. More volatility is forecast for the summer but at least the weather’s sunny! Date of Next Meeting: 11th August 2011 |
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