After a volatile end to June in the aftermath of the Brexit vote, markets in July bounced back from the initial post-Brexit fallout. As DB notes, the majority of equity markets in particular are either back to or above pre-Brexit levels with the sole exception to that still being European banks, where Italian bank and general profitability concerns have been at the forefront.
While the STOXX Banks index gained by +6% this month and was one of the top five performers, it still remains in negative territory since Brexit (-12%). Much of the general rebound elsewhere can be attributed to the renewed hopes of central bank policy remaining accommodative. In the case of the BoE and ECB, expectations are high for further easing despite remaining on the sidelines in July and instead waiting for the post-Brexit data. Despite what was a relatively disappointing BoJ meeting on Friday, markets are waiting for fiscal stimulus.
As we look at our winners and losers for the month, the resilience of risk assets is made even more impressive given the 14% slide for WTI which in the process has seen it fall into a bear market. In fact commodities occupy the bottom five places in our sample with Brent (-13%), Corn (-7%) and Wheat (-5%) joining the broader commodity market index (-6%). At the other end, equity markets dominate the notable leaders this month. In local currency terms the Bovespa (+11%) sits atop, while the DAX (+7%) and Nikkei (+6%) follow closely. European equity markets were up 4-7% with banks at the upper end of that range after a decent last day of the month ahead of the stress tests. The S&P 500 was also up 4% while the FTSE 100 rose 3%. Silver (+9.5%) gets an honorable mention for a second consecutive strong month of gains and holding its spot as the best performing asset this year (+46% YTD). Meanwhile returns for credit markets were positive once again, with European credit marginally outperforming US credit in July. High beta EUR and US HY and fin subs were up 2-3% while IG corps, IG non-fins and fin senior sat in a 1-2% return range. Sterling credit however was a particularly strong performer this month with IG non-fins and fin subs posting returns of 6% while HY gained by +3.5%. A Gilt rally, bargain credit hunting post the Brexit sell off and hopes of BoE corporate bond buying helped. Sovereign bond market returns were a lot more subdued. Treasuries and Bunds were flat on the month, Spanish and Italian sovereigns rose about 1% while Gilts were 2% higher. Weak US GDP numbers on Friday also erased earlier monthly gains in the USD with the dollar index ending the month down -0.6%. Overall though the tone was overwhelmingly positive in markets though. In our sample of 42 assets, 36 finished with a positive total returns in local currency terms as well as USD hedged terms.
On a YTD basis, while various equity markets continue to struggle with outperforming the Y-axis, and European banks remain the worst performers in both local and USD-terms, the surprise is the strong performance of both gold and silver, ranking #1 and #3 in local currency terms, and also among the top three asset classes in all 2016 when rebased to USD, with Brazil remaining the surprising outlier in top position despite an economy which continue to implode in a depressionary supernova, one which is sure to get even worse following the giant money-hole that is the Summer Olympics.
As DB’s Jim Reid concludes, “Augusts have a habit of throwing up some nasty surprises while markets are on holidays. Let’s see if this year is more peaceful.”
via http://ift.tt/2atCGoO Tyler Durden