COVID-19 infection rates continued to slow in many countries throughout June and the easing of lockdown measures continued, prompting further optimism on the economic and corporate outlook. However, certain US states such as Florida and Texas, as well as China, have seen new cases start to rise again, prompting fears of a second wave. Cases spiked in Brazil and India, as the end of the month saw the worldwide death toll from the pandemic hit 500,000 people.
Policy remains supportive, with interest rates kept on hold by central banks in the US, Japan, UK and eurozone. In addition, the European Central Bank expanded its emergency bond-buying programme; the Bank of England boosted its own scheme by £100bn; and the Bank of Japan increased the total size of its support for corporate financing. Lastly, the US Federal Reserve altered its meeting statement to highlight that its bond purchases will continue “at least at the current pace”.
The recovery in economic data continued in June, as composite purchasing managers’ indices (PMI) – which measure business activity – for the US, UK and eurozone all registered gains. Sentiment also improved, with a rise in the headline reading for the IFO business climate index – an early indicator of economic developments – in Germany beating expectations. The Chicago Conference Board consumer confidence index also rose to above-consensus levels. A pick-up in consumer spending is evident in the eurozone and US.
Brexit negotiations are returning to the fore, with the UK deciding not to request an extension to the transition period. Time is running out to craft a trade deal acceptable to both sides, with key areas of disagreement, such as level playing fielding commitments and fishing rights, still to be resolved. There are still tensions between the US and China, and these are likely to continue to be a driver of markets in the coming weeks and months.
Equity markets ended June up on the month, led by Europe, Asia ex Japan and emerging markets, while the US and UK lagged on a relative basis. All our strategies saw positive absolute performance over the month, with strong relative performance from our Global Sustainable strategy, along with our Japanese strategy. Our external US value manager, Barrow Hanley, also generated strong outperformance over June. We ended the month at a discount of 7.5%, having averaged a discount of 6.4% over June.
Although the peak appears to have passed for many countries, the repercussions of COVID-19 still represent an existential threat to many businesses. This is unlike any of the challenges which we have faced in recent times. Nonetheless, F&C Investment Trust has a tremendous advantage through our corporate structure, which makes us well placed to withstand further market volatility. Although we cannot tell with certainty when the current crisis will end, as always, we remain focused on the long-term opportunities, for the benefit of our shareholders.
All information as at 30 June 2020, unless stated otherwise.