Most risk assets rallied in June, as coronavirus case and death counts continued to mount around the world, particularly in North and South America, global economies moved cautiously to reopen, and global central banks provided continued verbal and monetary support. Global equities moved mostly higher, with growth stocks again leading the rally, the oil complex continued to rebound, the US dollar index weakened, and credit spreads widened. At its June policy meeting, the Federal Reserve maintained rates near zero, indicated that it would be targeting monthly purchases of $80 billion of Treasuries and $40 billion of mortgage backed securities going forward, and announced that in addition to bond ETF purchases, it would begin buying individual corporate bonds; the Fed also predicted a 6.5% GDP contraction in 2020, followed by a 5% rebound in 2021. Later in the month, Chairman Powell cautioned that the timing and strength of any economic recovery was extremely uncertain. US industrial production rose by 1.4% in May, led by a 3.8% jump in manufacturing output, while the CPI report showed that consumer prices fell 0.1% in May for the third consecutive monthly decline. In Europe, the ECB maintained interest rates at previously low levels, increased the level of its bond purchases by 600 billion euros (bringing the total post pandemic purchases to 1.35 trillion euros), and extended the duration of the new bond purchasing program to June 2021; the ECB predicted an 8.7% GDP contraction in 2020, and a 5.2% rebound in 2021. Many Asian central banks, including in China, Australia, and Japan, expressed the need for ongoing monetary support and the willingness to implement additional easing measures if necessary. China’s industrial production increased 4.4% in May, though retail sales fell for the fourth straight month. The most recent initial jobless claims report (for the week ended June 20) showed that weekly jobless claims totaled 1.5 million, the 14th consecutive week above 1 million (a level never reached in the pre pandemic era), though continuing claims fell below 20 million for the first time in two months. The May US jobs report showed that 2.5 million jobs were added during the month, the unemployment rate fell to 13.3% (from 14.7%), the labor force participation rate rose to 60.8%, average hourly earnings decreased 6.7% from a year earlier (as more lower paying workers were reemployed), and the total labor force rose to 158.2 million, of which 137.2 million were employed.
Developed market equities rose in June (see page 8), led by the Hong Kong (+11%), Italy (+6.4%), and Germany (+5.2%). US small caps outperformed large caps, with the Russell 2000 up 3.5%, and the Russell 1000 up 2.2% (see page 3). The best performing S&P 500 sectors in June were IT (+7.1%), Consumer Discretionary (+5%), and Materials (+2.2%), and the worst performing were Utilities (-4.7%), Health Care (-2.4%), and Energy (-1.3%). Large cap growth (+4.4%) outperformed large cap value (-0.7%) in June (see page 3). Emerging market equities mostly rose during the month (see page 9), with the biggest gains in China (+8.8%), Brazil (+8.6%), and Argentina (+7.9%), and losses in Russia (-1.2%) and Thailand (-0.8%).
In currencies, the USD Index weakened in June (see page 10). The New Zealand Dollar (+4%), Australian Dollar (+3.5%), and Swiss Franc (+1.5%) saw the biggest gains against the USD, while the Japanese Yen (-0.1%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Thai Baht (+2.9%), Koran Won (+2.7%), and Taiwan Dollar (+1.5%), and the biggest losses in the Mexican Peso (-3.6%), Brazilian Real (-2.3%), and Russian Ruble (-1.5%).
The US interest rate curve was little changed on the month (see page 12). 10 year rates closed the month at 0.66%, from 0.65% at May month end. US investment grade and high yield spreads widened (see page 13).
In commodities, the GSCI index increased (+5.1%) in June (see page 11), with gains in Energy (+8.9%), Industrial Metals (+7.3%), Precious Metals (+2.5%), and Agriculture (+0.7%), and losses in Livestock (-7.4%). Within individual commodities, Copper (+11.9%), Heating Oil (+11.8%), and Gasoline (+10.1%) saw the biggest gains, while Lean Hogs (-19.1%), Natural Gas (-10.1%), and Cocoa (-8.9%) saw the biggest losses. Gold was up 2.8% in June.
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