Mid-June Market Snapshot

After last week’s unambiguous Risk Off, the week 15-19 June has seen a rather half-hearted Risk On. Liquidity still seems to be the driver and since most of it comes courtesy of the Fed into the eager hands of Risk Taking investors, mainly, but not only, US-based who punt it mainly, but not only, at good, bad and ugly US stocks. In effect, share prices are going up because the punts keep paying off and many institutional investors are prepared to hold their noses as they stay in the dance (but remain close to the door). Some justification can be found in somewhat better than expected economic data from around the world but this does require concentrating on month on month and ignoring year on year numbers. It also requires ignoring new COVID outbreaks in Beijing and South Korea and no let-up in US cases, especially in Southern states.

In contrast and understandably, Asian equities have had a quiet to soft week while, somewhat surprisingly, US Treasuries, Gold and the dollar have actually recorded modest gains. US corporate bond yields fell in response to the Fed’s making good its promise to buy some with a timing that was widely seen as also putting new heart to any investors who were thinking of leaving the equity dance floor. More central bank action to boost banks in the Euro Area helped to push sovereign bond yields lower there too. In contrast and again understandably, China bond yields kicked higher in expectation of a stream of new issues to fund more economic stimulus. Longer-dated gilt yields rose in response to the Bank of England’s plans to slow the pace of its asset purchase programme, even while increasing its size (presumably to help out the Government). Sterling is taking something of a beating, which may reflect renewed disquiet at the Government’s handling of COVID and the Brexit negotiations.

Frankly, there is a lack of conviction everywhere apart from the extreme bulls and bears. COVID has not yet gone away and the scale of damage to the job market is not yet obvious. The situation in equity markets does not seem stable, even if prices do keep going up.