June was a month dominated by mucky politics and interest rate divergence.
On the inflation front, with oil still sitting relatively high above $80 and geopolitics continuing to run hot, inflation somehow appears to still be falling. We may raise an eyebrow, but are not ones to question such data, with the latest figures showing US inflation falling to 3.3% and the May UK inflation numbers back down to the Bank of England’s target of 2%.
Politically, the world has become an unpredictable mess, and change is afoot. In France, Macron has called a snap election that looks increasingly unwinnable. In the UK, Labour appears set to win a landslide majority over the Conservatives. Meanwhile, in the US, the Biden vs. Trump battle rages on, with Biden’s performance at the head-to-head debate so poor that the New York Times has called for him to step aside.
Ignore what we said last month that Europe would wait for the US before touching interest rates... We were wrong and not for the first time. On 6 June, the ECB cut interest rates, hot on the heels not of the Fed but of the Bank of Canada. Lagarde has cut Europe’s reliance on Fed direction, stating that the ECB is independent and driven by data. As things stand, data-dependent, there are likely to be two further rate cuts this year.
It is interesting to see the direction of the Fed and Bank of England. The latter’s hands are tied until the general election on 4 July, but the quarterly GDP was revised higher, which under normal circumstances would have seen a 0.25% drop in June. Meanwhile, the Fed will continue to follow its own path, regardless of European direction, but with the US slowdown increasingly evident, the likelihood is of at least one cut this year.
The equity story of the month was the Nvidia hiccup or blip, which saw the stock fall by 13% over two days as investors took profits, affecting other US tech stocks. Yet this was temporary as both the S&P 500 and Nasdaq powered ahead, up 3.5% and 6.0% respectively. Amazon was up 9.6%, Alphabet 5.4%, Tesla 11.1% and even Nvidia was up 7.6% for the month. In Europe, the story was somewhat less pretty, with the FTSE 100 down 1.3% and the Dax down 1.4%. In Asia, it was more nuanced, with the Nikkei 225 up 2.8% and the Shanghai Composite Index following its more normal course south, down 3.9%.
In commodities, oil was up largely driven by instability in the Middle East, ignoring comments from Opec+ that later this year they would phase out 2.2 million barrels per day in production cuts. By month end, Brent and WTI were up 5.9%. In precious metals, gold was flat while silver, which had broken through $30, was back below, down 2.9% for the month.
Bitcoin had a bearish June to end the month down 9.8%, which was led by a selloff in the crypto miners and concern about Fed direction.