“The second quarter of the year saw new highs being achieved by the US markets and strongly trending higher Japanese markets – until the dreaded words of tapering were uttered by the US Fed. Volatility levels are spiking, as market participants start to price in the eventual removal of the punch bowl. As Bill Gross famously tweeted during the quarter: “No asset classes are safe, as all appear to be overvalued”. He also called the end of the bond bull market on the 29th April, which we whole heartedly agree with (barring short term movements aside).
Economic data in the US remains patchy with the US consumer appearing to be driving the recovery, whilst manufacturing data is less supportive. Housing is gaining traction, with double digit increases being seen in almost all areas. This is helping to support consumer confidence, which is at 5 year highs.
Bond markets had one of their worst months in two and half years in May, as investors started to price in a less accommodative Fed. Yields moved from 1.6% at its low to close above 2.5%. It is important to note that the Fed has not said that they will increase interest rates, nor explicitly stated that quantitative easing is going to slow from the $85 billion monthly purchases. However the mere whiff that QE might not be infinite (which actually was always going to be the case), has caused investors to sell first and ask questions later.
Commodities have suffered a lot of whipsawing, but base metals and gold have continued their poor run. Gold has had few friends right now and one is reminded that it does not offer a dividend yield. This becomes a hindrance as markets eventually see the days when interest rates will rise again…” [Excerpt from a commentary written by Joanne Baynham]International Asset Allocation Commentary - Q2, 2013