• Significant market movement occurred, prompted by the Quadruple witching day that took place on the third Friday in June when options and futures for single stocks and indexes expired.
• The Fed opted to keep the federal funds target range unchanged at 0% to 0.25% and their monthly asset purchasing programme at $120 billion. Upward revisions were made to GDP growth and PCE inflation forecasts this year to 7% and 3.4% respectively from 6.5% and 2.4% previously. 13 out of the 18 committee members signalled that they expect at least one 25bps rate hike in 2023, as indicated in the dot plot.
• Despite a tricky month, the FTSE All-World Index ground higher, climbing 1.2% in June after rising 1.65% the previous month.
• The reflation trade remained intact in June as the Refinitiv/Core Commodity CRB Index climbed 2.4% after rising 3% the previous month.
Global markets had an eventful month with notable swings to the upside and downside. In particular, the quadruple witching day prompted significant market movements as options and futures for single stocks and indexes expired. In addition to this event was the Federal Open Market Committee which took place during the course of the month. As expected, the Fed opted to keep the federal funds target range unchanged at 0% to 0.25% and monthly asset purchasing programme at $120 billion. However, the committee decided to hike the interest on excess reserves and the overnight reverse repo rate by 5bps. This attempts to keep funding market rates from going below 0%. Unsurprisingly, the committee also upwardly revised GDP growth and PCE inflation forecasts this year to 7% and 3.4% respectively from 6.5% and 2.4% previously. Importantly, 13 out of the 18 committee members signalled that they expect at least one 25bps rate hike in 2023 as indicated in the dot plot.
Despite a tricky month, the FTSE All-World Index grinded higher climbing 1.2% in June after rising 1.65% the previous month. The VIX “fear gauge” ended the month at a lower 15.8 compared to 16.8 the previous despite another episodic volatility spike mid-month. We maintain that cross asset volatility remains well contained for now, although the investment climate will certainly be challenging into the second half of the year, particularly as global growth momentum begins to lose steam.
It is worth noting that the US 10-year bond yield continued to ease somewhat amid lower fiscal issuance, there were weaker than anticipated data releases and a substantial increase in speculative bond positioning. However, the MOVE Index implied volatility in one-month treasury options and ended the month at a higher 57.3 from 52 the previous month. This signals that sporadic movements in the yield curve may not be over just yet unless the index trends down meaningfully.
The reflation trade remained intact in June as the Refinitiv/Core Commodity CRB Index climbed 2.4% after rising 3% in the previous month. Unsurprisingly this comes against the backdrop of elevated inflation statistics on a global level amid a low 2020 base that exacerbates the rate of change in the data, higher oil prices, supply chains disruptions, as well as strong demand pull-inflation.
Notable progress continues to be made on the vaccination front in major economies such as the US and UK, with roughly 47% and 50% of the population being fully vaccinated respectively. Encouragingly, roughly 11% of the world is now fully vaccinated according to the latest figures from Our World in Data (https://ourworldindata.org/covid-vaccinations).
It is worth noting that China continues to underperform broader emerging markets amid a stagflationary backdrop which has quelled support for their equity market. We continue to remain cautious of this region in terms of our positioning in the multi-asset fund range.
We believe that there is further upside in broader equity markets, however we have become particularly selective in our positioning by lowering the overall beta exposure in the Ashburton multi asset fund range as a few warning signs continue to rear their head on the global front. In particular, the Chinese credit impulse has delved even deeper into negative territory signalling that the second half of the year will almost certainly experience slowing growth momentum. Additionally, the global thrust from fiscal stimulus has been largely front-loaded resulting in a much more circumspect investing style relative to previous months. We acknowledge that the re-opening of many economies will provide investment opportunities and we will certainly be looking to position for this accordingly.
We continue to believe that a more material recovery is expected on a full-year basis as precautionary savings unwind, and as economic activity recovers off a low base. As the vaccine rollout continues, it’s a positive for the global economy as lockdown restrictions continue to be lifted. Inflation is likely approaching its peak and is expected to slow in the second half of the year. While talks of tapering by the Fed are expected to commence in the second half of the year, we believe that monetary policy will likely remain largely accommodative and that any reduction in liquidity from the central bank will be gradual.
In the short term, we continue to believe that yield curves in many developed economies will likely remain flat or gradually rise. We do, however, acknowledge that this backdrop may well be nearing a peak as economic growth and inflation begin to slow in many markets around the world.
The Global Growth Fund climbed 1%1 in June, below the benchmark of 1.5%, although in line with the peer group. Our asset allocation decisions during the course of the month were favourable by adding to various equity positions in mild weakness which contributed positively to overall performance. However, several of the funds that we are invested in detracted from performance meaningfully during the course of the month. Nevertheless, the Global Growth Fund has returned 9.6% year-to-date, well above the benchmark of 8.3% as our overweight in reflation-led sectors and underweight positioning in duration have contributed positively. Other Multi asset funds such as the USD Global Balanced Fund climbed 1.1% (slightly below the benchmark of 1.3%), and the Sterling Asset Management Fund rose 1.2% (above the benchmark of 0.3%). For the two aforementioned funds it is worth noting that performance was above their Morningstar peer groups of 0.5% and 0.9% respectively.
1 All performance metrics are state in I Class terms.