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LCP Investment Summary June 2019

Posted on 1 July, 2019 by Administrator

LCP Investment Summary June 2019

Equities

Global equity markets rose 4.3% (in € terms) in June. After the sharp falls seen in May, markets started the month strongly especially after weaker-than-expected U.S. employment figures with investors believing that the Federal Reserve may now cut interest rates as early as July. This view strengthened following the Fed’s meeting later in the month, with its language on economic growth changing from a ‘solid rate’ to a ‘moderate pace’. ECB President Mario Draghi also said on two occasions over June that they could cut interest rates and/or introduce other stimulus measures if both economic growth and inflation remained sluggish.

The ongoing trade issues have exasperated the global economic slowdown, and again investors took their lead from the latest tweet or news update. U.S. tariffs on Mexican imports were postponed, just days after they had been imposed at the end of May, as Mexico pledged to curb illegal migration. Hopes also rose that a trade truce would be announced following the meeting of the Chinese and U.S. Presidents at the G20 meeting late in the month. Investors will also keep a close eye on the effect of the trade war on the upcoming Q2 corporate earnings, especially those of multi-nationals.

Bonds

Longer-dated Eurozone bond prices rose 3.1% in June, with the yield on the AAA Eurozone 15+ Year Index falling to 0.15% by month-end. The Euro Broad Sovereign 10+ Year Index rose by 5.1% with its yield falling to 0.96%. Despite stronger equity markets, yields on longer-dated AAA bonds continued to fall as the ECB hinted at interest rates cuts and other possible stimulus measures to encourage both economic growth and inflation (up to its 2% p.a. target). The total amount of global debt with negative yields hit a record $13 trillion in June.

Sample DC Schemes

All three of our sample DC Strategies rose in June as most asset classes were up. 

 

Market Performance – Q2 2019 

Global equities rose 2.6% (in € terms) in Q2 ’19, following on from the sharp rise in equity markets over Q1, although they were down strongly in May as investor concerns over global trade issues surfaced again. However, these concerns were more than outweighed by investor relief that interest rates would be coming down in the U.S, possibly in the Eurozone also, and on hopes of a trade truce late in June.

Eurozone AAA-rated bond prices rose 5.6% (and yields fell) over the quarter due to continuing weaker than expected economic and inflation data, and following the comments from the ECB in June about providing further stimulus to the Eurozone area if required.

 

Equities 

April: Global equity markets rose in April as markets continued to move ahead after a very strong Q1, with better-than-expected economic data released during April for the Eurozone, U.S, U.K. and especially China reassuring investors. Q1 GDP growth for China was 6.4%, ahead of expectations, as the stimulus measures introduced last year appear to be working. This should be good news for European exporters. Corporate earnings were strong, although expectations had been lowered somewhat. Large market names like JP Morgan, Microsoft, Amazon, Facebook and Walt Disney all performed strongly. The U.S./China trade talks continued in both Washington and Beijing with a potential end in sight, although there still remains thorny issues like intellectual property and data transfer to be resolved.

May: Global equities fell sharply in May despite starting the month with some markets hitting record highs in the first week after a stronger-than-expected U.S. employment report. However, investor sentiment turned quickly following President Trump’s announcement that tariffs on $200bn worth of Chinese imports would increase from 10% to 25%. China duly responded by raising tariffs on $60 billion worth of U.S. goods to between 10% - 25%, starting in June. Technology stocks then fell after President Trump’s executive order, declaring a national economic emergency banning technology & services of ‘foreign adversaries’ (like Huawei) deemed to pose ‘unacceptable risks’ to national security. The ongoing global trade issues have impacted on both business and consumer confidence, leading to falling expected capital expenditure which is weighing on already sluggish global economic growth. Investors were further rattled at month-end as President Trump turned his attention to Mexico, announcing tariffs of up to 25% on all Mexican imports to the U.S. as retaliation for illegal immigration. This hit global car makers like General Motors, Fiat Chrysler, Ford and BMW as they all have significant operations in Mexico.

June: Markets started the month strongly especially after weaker-thanexpected U.S. employment figures with investors believing that the Federal Reserve may now cut interest rates as early as July. This view strengthened following the Fed’s meeting later in the month, with its language on economic growth changing from a ‘solid rate’ to a ‘moderate pace’. ECB President Mario Draghi also said on two occasions over June that they could cut interest rates and/or introduce other stimulus measures if both economic growth and inflation remained sluggish. The ongoing trade issues have exasperated the global economic slowdown, and again investors took their lead from the latest tweet or news update. U.S. tariffs on Mexican imports were postponed, just days after they had been imposed at the end of May, as Mexico pledged to curb illegal migration. Hopes also rose that a trade truce would be announced following the meeting of the Chinese and U.S. Presidents at the G20 meeting late in the month. Investors will also keep a close eye on the effect of the trade war on the upcoming Q2 corporate earnings, especially those of multi-nationals.

 

Bonds 

Eurozone AAA bond yields rose in mid-April following the higher-thanexpected Chinese GDP data which should be a positive for the Eurozone economy, and then again at month-end following the release of stronger growth and inflation data in the Eurozone.

Yields then fell sharply in May as investors looked to the ‘safe-haven’ of longerdated bonds with equity markets under pressure. Trade war issues put more pressure on the slowing global economy with investors now pricing in the possibility of interest rate cuts during 2019/20.

Despite stronger equity markets in June, yields on longer-dated AAA bonds continued to fall as the ECB hinted at interest rates cuts and other possible stimulus measures to encourage both economic growth and inflation (up to its 2% p.a. target). The total amount of global debt with negative yields hit a record $13 trillion in June.

 

 

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