Equity markets rallied in June with all equity markets exhibiting positive returns. In a very eventful month the markets were mostly range bound until the announcement at the European Union summit meeting of the intention to create a single supervisory mechanism for banks and for the ESM to recapitalise banks directly; the latter clearly designed to separate bank debt from sovereign debt.
Investors took heart from this with equity markets posting significant gains on the last trading day of the month and Spanish and Italian bond yields declining. The end result was that global equities posted a return of 2.4% (MSCI World in euro terms) in June while eurozone bonds were weak (ML >5yr Euro Govt Bond Index down 2%).
The US S&P 500 returned 1.4% in euro terms while eurozone equities as measured by the MSCI EMU Index rallied significantly returning 6.4% for the month. Emerging market equities meanwhile rose by 1.2%. Commodities also performed well although oil was weak. On the currency side the euro rose against all major currencies in June buoyed by the euro summit developments.
In relation to economics and political developments June again saw most headlines surround the ongoing euro crisis. The second Greek election saw pro-euro parties win a comfortable majority, which sharply reduced any immediate prospect of Greece leaving the eurozone. EU unemployment is now running at 11% and there are signs that even the German economy is slowing down. Furthermore June PMI data signalled that the downturn in the eurozone manufacturing sector has extended to an eleventh successive month.
On the positive side stronger retail sales in Japan boosted market sentiment. June saw a slew of relatively weak data from the US but the month end brought some welcome relief with US durable goods orders and pending home sales surprising to the upside, the latter data point being the latest in a chain of data received over the past few months suggesting the US housing market has bottomed.
Chinese economic data continue to show a slowdown in the world’s second largest economy. Overall for the first half of the year global equities were up by 8.7%, eurozone equities up by 3.8% and over 5 year euro government bonds up by 5.2% (all in euro terms).
Source – Kleinworth Benson Investors