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Monday, July 1, 2019

June 2019 - Monthly Market Commentary

June brought a sharp rebound in global risk assets, with US equities reaching fresh all-time highs as global trade tensions cooled somewhat during the month. Global equities rose sharply, credit spreads tightened, the US dollar weakened, and the oil complex rallied; US Treasury yields moved lower, particularly at the short end of the curve, and gold rallied to six year highs, as several major central banks took a more dovish tone during the month. At its June meeting, the Federal Reserve made no change to interest rates, but indicated that “the case for somewhat more accommodative policy has strengthened”. The Bank of Japan indicated that if economic growth slows, it would “consider expanding stimulus without hesitation”, the European Central Bank indicated that “additional stimulus will be required” in the Eurozone if the outlook doesn’t improve, and the Reserve Bank of Australia cut rates for the first time in three years; the Bank of England held rates and guidance unchanged. Citing global trade tensions, the World Bank lowered its global growth forecast to 2.6% from 2.9%, and cut its forecast for global trade growth to 2.6% from 3.6%. Despite global trade issues, the US service sector expanded, as the June ISM non-manufacturing index rose to 56.9 in May from 55.5 in April. US retail sales rose 0.5% in May, an increase from April’s 0.3%, though consumer confidence declined from 100 in May, to 97.9 in June. China’s imports dropped a sharper than expected 8.5% in May, after rising in April, and exports to the US fell 4.2%. The US jobs report showed that 75,000 jobs were added in May (the 104th consecutive month of job creation), the unemployment rate held at 3.6% (a 50 year low), the labor force participation rate held at 62.8%, and average hourly earnings rose 3.1% from a year earlier.

Developed market equities rose in June (see page 8), with the biggest gains in Italy (+7.2%), the S&P 500 (+7%), and Hong Kong (+6.7%). US small caps slightly outperformed large caps, with the Russell 2000 up 7.1% and the Russell 1000 up 7% (see page 3). Materials (+11.7%), Energy (+9.3%), and IT (+9.1%) were the best performing sectors in June; Real Estate (+1.8%), Utilities (+3.3%), and Communication Services (+4.3%) were the worst performing sectors (see page 2). Large cap value (+7.2%) outperformed large cap growth (+6.9%) in June (see page 3). Emerging market equities were mostly higher in June (see page 9), with the largest gains in Argentina (+26.6%), China (+7.7%), and Thailand (+6.2%), and losses in India (-1.2%).

In currencies, the USD Index was lower (-1.7%) in June (see page 10), with the biggest gains against the USD seen in the Canadian Dollar (+3.2%), New Zealand Dollar (+2.9%), and Norwegian Krone (+2.6%). Emerging market currencies were also stronger against the USD, with the largest gains in the South African Rand (+3.5%), Russian Ruble (+3.4%), and Korean Won (+2.8%).

The US interest rate curve shifted lower, and remained inverted in June (see page 12). 10 year rates closed the month at 2.01%, down from 2.12% at May month end. US investment grade and high yield spreads tightened in June (see page 13).

In commodities, the GSCI index was up 4.4% in June (see page 11), with gains in Precious Metals (+7.7%), Energy (+6.6%), Industrial Metals (+2%), and Agriculture (+0.3%), and losses in Livestock (-2.4%). Within individual commodities, Palladium (+15.7%), Crude Oil (+9%), and Gasoline (+9) saw the biggest gains, while Lean Hogs (-10%), Natural Gas (-5.6%), and Corn (-2.2%) saw the biggest losses. Gold was up 8% for the month.

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