Market Updates

Over the three months to the end of June, investors continued to watch central banks to deduce the potential trajectory of base interest rates. Rate cuts have been slower than many expected, leading to volatile bond markets as investors have reacted to economic data points along the way.

Understanding the direction of interest of rates is important when setting the allocation of bond portfolios, and some managers have struggled to make the right calls as the backdrop has shifted rapidly. Broadly speaking, shorted-dated bonds have continued to perform strongly as investors seek to reduce exposure to interest rate risk.

Global equities continued to deliver positive returns led by the tech stocks that have been driving developed markets over the last 18 months or so. The US is the undisputed winner here, but outside the tech sector results are more subdued. The UK stock market has seen signs of improvement, but valuations remain low by historical standards.

2024 is the year of the election, and the second quarter saw some significant results. Markets were hesitant after Narendra Modi’s BJP saw an unexpected fall in support in India, while the peso saw a sharp fall on the landslide victory of left-wing candidate Claudia Scheinbaum and the Morena Party. Conversely, markets reacted more positively to the ANC’s loss of overall majority and subsequent coalition negotiations in South Africa.

European parliamentary elections went broadly as expected, with gains for the far right, but the centre-right retained control. The result led President Macron in France to declare an early election and it is to be seen if the populist right will take control from Macron’s centrist Renaissance Party. Similar tensions will hang over Germany for local elections later this year.

Prime Minister Rishi Sunak also called an early election in the UK but here a change of government looks likely, with Labour on track for a comfortable majority. Stretched budgets will limit the potential for bold policy moves, but investors will be looking for potential catalysts for a positive rerating for UK companies.

In the US, the 27 June TV debate appeared to confirm the slender lead for former President Trump, although at the time of writing calls for President Biden to step aside could change the flavour of the race. Our view, however, is that the outcome won’t have a significant impact on the underlying forces that are driving the US market returns, particularly in the tech sector.