The worst case may have been averted, but uncertainty persists
Volatility picked up during June as contrasting news flows pulled sentiment first one way, then the other. Daily stock market moves in the hundreds were commonplace, but most indices ultimately ended the month higher. The rally in risk assets had been fuelled by a combination of fiscal and monetary stimulus and the gradual reopening of economies. Central banks had communicated as clearly as possible that monetary support was here to stay.
We trust this finds you well
As the pandemic continued to evolve, we wanted to ensure our clients knew they could contact us at any time for queries or clarification. We remained fully committed to the ongoing management of investments through what continued to be an uncertain period.
Asian markets lead as bond yields fall to fresh lows
Asian and emerging markets led the way during June with gains of around 7%. European shares rose a healthy 4%, but the US and UK were more subdued, managing only 1 to 2%. The fall in bond yields continued, driven by further central bank initiatives to support prices, allowing the UK government to issue five-year bonds on a negative yield. Globally, the driving force was central bank commitments to buy vast quantities of bonds, including corporate and some high-yield debt. The belief that some central banks were unofficially committed to controlling yields on longer-dated bonds also kept investors keen.
Initially, confidence that the fall in new COVID-19 cases allowed for the gradual easing of lockdown buoyed stock markets. Europe, in particular, demonstrated a rise in mobility data without a consequent spike in new cases. But in late June, a rapid increase in cases across the US Sun Belt states, together with isolated outbreaks in several countries, returned markets to a more cautious tone.
PMI data bounces as US employment surprises again
Economic data tended to suggest that the worst had passed, and some numbers surprised to the upside. The purchasing managers' indices showed a strong bounce to near the neutral growth level of 50, and employment data from the United States was far stronger than forecast. In the UK, despite further government initiatives, jobs were lost across the travel and retail sectors.
Economic data had been both worse and, more recently, better than expected, but all this really showed was the difficulty of trying to predict an outcome when there was no historic precedent for a deliberate global economic shutdown followed by monetary and fiscal stimulus in the trillions of dollars.
Trade friction escalates on multiple fronts
Trade tensions, mostly involving the United States, escalated during June. China provoked widespread condemnation by passing the National Security law on Hong Kong, aimed at limiting subversive activities and foreign intervention. The US responded by suggesting that Hong Kong might lose certain special trade privileges. President Trump reignited the simmering rift with Europe by threatening to impose tariffs on $3.1 billion of European products. In the background, the deadline for requesting an extension to the Brexit transition quietly passed.
A note from the desk
I am pleased to share our monthly update on market events. The overview seeks to summarise market movements together with our views and the rationale for the positioning of investments going forward. As always, should any aspect of this commentary prompt a question, we would welcome the conversation.
Martyn Charlwood · Managing Director
The path to recovery is far from clear
The worst-case scenario of the crisis may have been averted, but that did not mean the path to economic recovery was clear. Investors were factoring in further waves of the virus but assumed these would be met with isolated regional measures. A more widespread resurgence culminating in a repeat of the original lockdown was not envisaged, and therefore not reflected in market valuations.
We could be fairly certain that, despite multiple government aid packages, many businesses would not survive. The UK chancellor's most recent multi-billion package was closely followed by announcements of store closures and job losses at Boots and John Lewis, while Airbus, EasyJet, Royal Mail, Arcadia and Upper Crust were among other high-profile names forced into laying off staff.
Central banks have communicated as clearly as possible that monetary support is here to stay.
Political risks remained, with the US election fast approaching, tensions between China and the rest of the world escalating, and Brexit still unresolved. The virus had not been fully contained, and an approved vaccine still seemed some way off. While this unpredictable risk remained, we expected markets to stay unsettled, but the continued search for income would underpin demand for risk assets.
We saw no reason to change our view that the risk of a further sell-off remained and that better opportunities may yet present themselves. We continued to hold considerable cash levels ready to deploy.
Cash ready to deploy
We continued to hold significant cash levels, ready to invest when conditions warranted, believing that better buying opportunities may present themselves as the full economic impact became clearer.
Diversified across alternatives
Our portfolios diversified risk by investing in a wide range of assets using actively managed funds with sound investment processes. Alternative holdings included gold and silver, infrastructure, agriculture and absolute return strategies.
Vaccine the key unknown
The virus had not been fully contained and an approved vaccine still seemed some way off. While this unpredictable risk remained, we expected markets to stay unsettled, but the search for income and central bank buying would continue to offer support.
Important information
This article is a marketing communication intended for general information only. It does not constitute personal advice, a recommendation, or an offer to buy or sell any investment. If you are unsure whether an investment is suitable for your circumstances, please seek personal advice.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise. Capital values are at risk and not guaranteed. Forecasts and views expressed in this commentary represent our assessment at the time of writing and are subject to change.
To discuss how this commentary applies to your own portfolio, we would welcome a conversation.
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