Life, we are frequently reminded, is full of surprises. Within the context of recent history, few, if any, political events have been more unexpected than the result of the UK’s referendum on EU membership. Despite apocalyptic warnings from “remain” politicians and ensuing media coverage and comment, the accompanying “risk-off” response within global financial markets (i.e. away from the UK) has, by contrast, been one of the most measured and proportionate of the numerous such episodes witnessed during the post-crisis era. This, in combination with the subsequent market movements, supports our view (with the caveat that many questions as yet remain unanswered), that the political implications of Brexit far outweigh the economic consequences and the impact of these will be more damaging for Europe than the UK over the long term.
Save for a brief bout of Brexit-inspired volatility during its final week, a backdrop of mixed economic and corporate news flow and moderating US interest rate expectations saw global bond and equity markets confined to relatively narrow trading bands for the majority of the quarter. The broad MSCI World index ended the period marginally higher in local currency terms, with mainstream bond markets gaining ground on the back of declining yields and stable or tighter credit spreads. Elsewhere, there was a sharp divergence in the fortunes of the Pound (weak) and Yen (strong) on the foreign exchanges, while gains across the range of
commodities sent the sector benchmark higher.
Equities
The benign market conditions that prevailed for much of the period reflected a largely unremarkable series of data releases from the world’s major economies. In the US, softer than expected new jobs numbers (most notably in May) were offset by strength in the housing sector and the continued solid showing in PMI (purchasing manager index) data from both manufacturing and service sectors. Though the initial Q1 GDP figure disappointed, the later upward revision (to +1.1%) was ahead of the consensus forecast. PMI numbers from the Eurozone were similarly favourable, indicating a steady, if unspectacular, trend of increasing activity that was echoed in the region’s first quarter GDP growth of 0.6%. In China, meanwhile, both official and third-party sources pointed to a more stable
environment (for now!), as, amongst others, retail sales and import numbers provided further evidence of the gradual shift in emphasis from export and investment towards a consumption-driven economic model… {DOWNLOAD THE ENTIRE REPORT NOW VIA THE LINK BELOW}
