As we hit the mid-point for the year, leaving behind a half most would rather forget and looking forward to a half in which central bank QT is about to really pick up, DB’s Jim Reid writes that markets spent most of the month of June flip-flopping between constantly evolving trade-war related headlines, as well as digesting the diverging path of a more hawkish than expected Fed versus a more dovish than expected ECB following their respective policy meetings.
So when it was all said and done, while the majority of assets ended the month with a negative total return (24 out of 39 in local currency terms and 26 out of 39 in dollar terms), the heaviest falls were reserved for EM assets in particular.
EM equities bore the brunt of this with the Shanghai Comp (-7.3%) officially falling into a bear market and falling by the most in a month since January 2016. The Bovespa (-5.2%) was also sharply lower while EM equities more broadly suffered a -4.1% fall. EM bonds were also hit to the tune of -2.8% despite Treasuries (0.0%) actually finishing unchanged. The other big fallers in June were soft commodities including Corn (-11.1%) and Wheat (-5.5%) as well as metals like Copper (-3.7%), Gold (-3.5%) and Silver (-1.9%).
Meanwhile, at the top of the leaderboard the clear winner in June was WTI Oil (+10.6%) which benefited from the latest OPEC decision to only gently reintroduce supply back into the market.
Meanwhile core equity markets largely chopped and changed around the trade headlines. The S&P 500 finished the month +0.6% and Stoxx 600 -0.6%, however the more export sensitive DAX was hit to the tune of -2.4%. European Banks (-0.6%) also continued to slide, not helped by the dovish ECB outcome while the relative outperformers last month was actually the periphery with the IBEX (+2.5%), Portugal General (+1.5%) and Greek Athex (+1.1%) all ending higher.
As for bond markets, Bunds (+0.1%) were similarly muted last month after yields did something of a u-turn post the ECB meeting. Spanish Bonds (+1.4%) and BTPs (+1.5%) were firmer while Gilts (-0.6%) suffered a negative total return. The end result for credit however was a broadly softer picture. In Europe only Senior Financials (+0.1%) delivered a positive return, with Non-Fins (-0.1%), HY (-0.5%) and Sub Financials (-0.5%) all weaker. In contrast, US HY (+0.4%) was the relative outperformer across the pond, while IG Corps delivered a -0.5% return.
The above is summarized in the June performance charts below.
Stepping back from June, and focusing on Q2 more broadly, the picture looks slightly weaker according to Deutsche. In local currency terms, 16 assets finished in positive territory versus 23 in negative. However the stronger USD (+5.2% versus the Euro, +4.0% versus the Yen and +5.8% versus Sterling) means that the picture is more stark in dollar adjusted terms with only 9 assets returning a positive total return, versus 30 delivering a negative return. In terms of standouts, the combination of Italy woes in May and a dovish ECB, trade war headlines and EM pain in June means the FTSE MIB (-1.7%), European Banks (-5.2%), EM Equities (-7.9%) and Shanghai Comp (-9.1%) are amongst the biggest equity market fallers in Q2. The S&P 500 (+3.4%) and Stoxx 600 (+4.3%) on the other hand delivered solid single digit returns. BTPs (-5.1%) were unsurprisingly the biggest bond market underperformer while Bunds (+1.3%) and Treasuries (+0.1%) were fairly muted. Meanwhile credit, with the exception of US HY (+1.4%), was weaker across the board with European indices returning -0.1% to -2.0% (higher beta underperforming) and US indices -0.4% to -1.6%. Brent (+16.7%) and WTI Oil (+14.2%) were the big winners in Q2.
Finally, for the first half of the year through June we’re now at 15 assets in positive territory in local currency terms but just 8 in dollar terms. WTI (+22.7%) and Brent (+22.3%) also top this leaderboard while at the other end the Shanghai Comp (-12.9%), Copper (-10.6%), European Banks (-9.8%) and EM Equities (-6.6%) have been the big underperformers.
The S&P 500 is sitting with a +2.6% total return which is ahead of the vast majority of core equity markets, while the Stoxx 600 (+0.1%) is more or less unchanged (although -2.6% in dollar terms). Bunds (+1.6%) have outperformed Treasuries (-1.1%) so far while in credit US HY (+0.3%) is the only positive returner
Source: Deutsche Bank
via RSS https://ift.tt/2tYbEjP Tyler Durden