The sun may be shining on the garden but all was not rosy for investors at the start of June, as both bonds and equities suffered. US equities remained more resilient than European ones. The FTSE 100 and euro first 300 indexes closed the week over 2.5% lower; the S&P 500 gave up just over one half of one percent.
Bond investors also took a bashing as yields rose sharply across the board. US ten-year treasury yields closed the week above 2.4%. 10 year gilt yield yields closed the week at 2.08%. Fund flow data for the past week reports equities and emerging market funds attracted capital, equity funds saw the largest inflows for the last 11 weeks. A volatile week for equities and bonds was not reflected in the Vix index, which closed on Friday pretty much where it opened on Monday. Retail investor sentiment remained little changed on the week.
The US economic data points that investors focused on in the past week were the Federal Reserves beige book report, that suggested the US economy economic growth was picking up in the second quarter. To back this up on Friday the latest non-farm pay roll data beat expectations.
Greece continues to make headlines as the Greek government delayed its latest debt payment to the IMF. It is hard to argue that Greece is not already in default by failing on its obligations to the IMF. In the coming month of June the Greek government is expected to repay over 5bn euros in short term bills as well as 1.5bn euros to the IMF. This really does feel like we are coming to the conclusion, the outcome remains uncertain.
Looking to the week ahead, comments from the meeting of the G7 on Sunday may grab headlines on Monday. It’s a quieter week in the US as the focus this week will move away from jobs and back to consumer sentiment. On Thursday we get the latest US retail sales data for May and on Friday the latest Michigan consumer confidence report. For the UK, on Wednesday the latest industrial production and manufacturing reports will be the focus of the week. In Europe, aside from the ongoing negotiations over Greece on Tuesday we get the 2nd quarter GDP estimates.
Equities have struggled to push on in the past few weeks, and this loss of mojo at the start of June should not be completely unexpected. Equity sentiment remains very cautious, the FT reports on Saturday that investors fear last weeks squall could turn into summer storms. Steeping yield curves should encourage equity investors but until bond markets settle equity investors will remain nervous.