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Market Reviews - GBP (June 2020)

A roundup of factors affecting regional equity and bond markets over the month
July 2020
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Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

UK

The FTSE All-Share Index rose 1.5% in sterling terms during June. The UK economy shrank by more than expected over the first quarter, contracting 2.2% as the COVID-19 pandemic continued. GDP also fell by a record 20.4% in April month on month. On the plus side, data suggested UK coronavirus infections continued to fall over June. Having allowed non-essential retailers to reopen for business in June, the UK government gave the green light for the likes of pubs and restaurants to open their doors on July 4. Nevertheless, the risk of countermeasures to address local flare-ups was highlighted towards month-end as the authorities announced tighter restrictions for Leicester owing to a rise in local infections. In terms of sectors, life insurance (12.3%) outperformed while health care, equipment and services (-6.7%) lagged.

Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested.

 

FTSE All-Share Total Return (TR) GBP (%)*

FTSE All-Share Total Return (TR) GBP (%)

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

Europe

The FTSE World Europe ex-UK Index advanced 4.9% in sterling terms. Monthly survey data pointed to further falls in overall eurozone manufacturing and services activity in June, though at a more moderate pace than in May. German and French surveys showed a sharp upturn in business sentiment in June, reflecting the recent relaxation in COVID-19 containment measures. Data showed eurozone industrial production slumped by 17.1% in April, when lockdowns were still at their height. The European Central Bank announced it would extend its quantitative easing programme, with the purchase of an additional €600bn in bonds. Germany unveiled fresh measures to kickstart its economy, including a 3% cut in VAT and one-off payments to families of €300 per child. France announced an extension of its COVID-19 job retention scheme for up to two years.

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

FTSE World Europe ex UK TR GBP (%)*

FTSE Word Europe ex UK TR GBT (%) - June 2020

US

The FTSE All-World North America Index gained 2.4% in sterling terms over June. US jobs numbers for May surprised on the upside, with 2.5m jobs added as the US economy began to reopen, and unemployment easing to 13.3% in May from 14.7% in April. US retail sales soared 17.7% in May as non-essential stores reopened and US consumers resumed discretionary instore purchases. The Federal Reserve (Fed) forecast US interest rates would need to stay at near zero until the end of 2022 to bring unemployment back down to pre-coronavirus crisis levels, while Fed chair Jay Powell stressed the nature of US economic recovery appeared highly uncertain. Towards month-end, certain US states began to reimpose some COVID-19 containment measures in response to a surge in new infections.

FTSE All-World North America TR GBP (%)*

FTSE All-World North America TR GBP (%) - June 2020

Japan

The FTSE Japan Index was flat in sterling terms during June. The Bank of Japan (BoJ) ramped up its coronavirus lending scheme, offering zero interest rate loans to banks that lend to domestic companies, increasing the programme’s scale to over $1tn. Japan’s central bank kept its monetary policy unchanged and signalled it would likely hold interest rates down until 2023. Data confirmed Japan’s economy had slid into recession in the first quarter, contracting at an annualised 2.2%, though this was an improvement on the -3.4% preliminary estimate. Separate figures showed Japanese industrial output had fallen for a fourth consecutive month in May, down 8.4% month on month, suggesting Japanese GDP had likely shrank further in the second quarter. Japanese unemployment rose to 2.9% in May, up from 2.6% in April.

FTSE Japan TR GBP (%)*

FTSE Japan TR GBP (%) - June 2020

Emerging Markets

The FTSE All-World Emerging Index advanced 7.4% in sterling terms over June. China (8.9%) was among the best-performing markets over the month amid further signs of recovery for the domestic economy. China’s Caixin/Markit manufacturing activity gauge for June surpassed estimates. Turkey (8.8%) pushed higher, helped by the relaxation of local COVID-19 control measures. Brazil (7.9%) was also among the top performers, with its central bank cutting interest rates by 0.75% to a record low of 2.25% as well as outlining plans to purchase domestic corporate bonds in the secondary market. Russia (-1.9%) was hindered by worries that it could face a new round of US sanctions. Similarly, Mexico (0%) was held back as the US applied sanctions on Mexican companies over their links with Venezuela.

FTSE All-World Emerging TR GBP (%)*

FTSE All-Share World Emerging TR (%) - June 2020

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index advanced 8.0% in sterling terms during June. Hong Kong (11.8%) was the bestperforming Asia Pacific market over the month, buoyed by improving Chinese and US economic data. This was despite controversy over the enactment of China’s national security law over Hong Kong, which serves to increase Beijing’s control over the territory. In response, the US revoked Hong Kong’s special trade status and appeared on course to pass sanctions targeting Chinese officials. New Zealand (11.4%) was also among the topperforming markets, boosted by the country’s highly effective response in controlling the spread of COVID-19. Taiwan (9.3%) fared well, with its technology sector seeing strong momentum. Thailand (2.4%) and Malaysia (2.8%) lagged, held back by concerns over the impact of the pandemic and their respective economic prospects.

FTSE World Asia Pacific ex Japan TR GBP (%)*

FTSE World Asia Pacific ex Japan TR GBP (%) - June 2020

Government Bonds

Overall, global government bond yields ended the month little changed. The Fed said it expected to keep US interest rates at near zero until at least the end of 2022 in order to bring US unemployment back down to pre-coronavirus levels. Some US economic indicators pointed to improvement in May as the US economy reopened, though a surge in COVID-19 cases prompted certain US states to reimpose virus containment measures towards the end of June. Headline US inflation dropped to just 0.1% in May from 0.3% in April, as economic weakness continued to exert downward pressure on prices. Peripheral eurozone sovereign bond spreads found support from the ECB’s move to extend its quantitative easing programme, with the purchase of an additional €600bn in bonds. Official estimates put eurozone inflation at 0.3% for June versus 0.1% in May.

Corporate Bonds

al corporate bond spreads narrowed over June. US economic data for May showed some improvement, helped by the easing of COVID-19 containment measures. However, certain US states began to reimpose restrictions towards the end of June in response to a rise in new infections. Survey data indicated the eurozone manufacturing sector had continued to contract in June, though at a more modest pace than in the prior month. The Fed forecast US interest rates would need to stay at near zero until the end of 2022 to bring unemployment back down to pre-coronavirus crisis levels. The ECB announced it would extend its quantitative easing programme, with the purchase of an additional €600bn in bonds. The BoJ ramped up its zero interest rate coronavirus lending scheme to help domestic companies.

 

*Source: Lipper to 30-Jun-20, total return. Indices rebased to zero at 29-May-20

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