Hey June, don't be afraid

Another month draws to a close, sell in May and go away would have been a tad premature as the FTSE All World index gained approximately another 1.5% on the month. The FTSE 100 finished the month marginally closer to 8000 than it did 7000. The FTSE 100 is often thought of having an inverse relationship with the pound. Stronger sterling, weaker large UK cap equities. On this occasion, the FTSE 100 rally received no tail wind from the weaker pound. Global equities have risen circa 10% this year bonds closer to 4% (USD). The Greek stock market has so far been the best performer, despite weak economic growth and continued uncertainties over its refinancing arrangements. The worst performing index has been Russia, as the oil price continues to stagnate and materials are the only sector down on the year to date. Technology has been the stellar performer, commodities have fallen be 5%, except for gold which has risen by circa 10%. The Credit Swiss hedge fund index has long short funds returning 4.99% year to date. Hedge fund industry has overall returned 2.51%. Value sectors appear to be shunned once again by investors in favour of growth as the anticipated rise in bond yields has not occurred despite inflation rates picking up.

Divisions within Europe remain over monetary policy driven by the needs of Germany and the rest of Europe. On Monday, we had Mario Draghi stating concerns that resurgent economic growth faces challenges and therefore current monetary policy should remain. On Thursday ECB’s Weidmann, also chief of the Bundesbank, stating that the euro areas improving economic prospects should be reflected in its current monetary policy.  Continuing the united front, or lack it, the German Finance Ministry according to Reuters has rejected the commission’s proposal for collective eurozone debt.

The next nine days will be dominated by opinion polls, as the election draws near. The bookmakers still make Teresa May and the Conservative party odds on to win, despite the narrowing in the polls. The pound, as we mentioned has hardly deviated from its current levels and UK gilt yields remain close to where they were at the start of the month, suggesting that overseas investors still feel confident Theresa May will win. IG Index are currently pricing the Conservatives 363-368 in number of seats won.

Aside from the blip of almost 2% in the S&P 500 in the middle of May, which was soon forgotten, the month was an uneventful one. The other main event of the month ahead will be the Federal Reserve’s decision whether to raise rates or leave them where they are. The Citi US economic surprise index, has fallen sharply in the past couple of months indicating economic activity has weakened. Inflation too has dipped away from the target 2% rate. Despite this, markets still believe the Fed will move in June. It may be a close call.

Posted on June 1, 2017 .