UK
UK equities rallied early on amid a global improvement in risk appetite,
before profit-taking set in once again. The key development in June was the
emergency budget; among the more significant deficit-cutting measures was a
hike in VAT to 20% from January 2011 and major cuts to public services.
Economic news showed that industrial production fell unexpectedly, but retail
sales rose by 0.8% in May, a big improvement on April's 2.3% decline.
Meanwhile, the unemployment rate dipped to 7.9%, and CPI fell to 3.4% in May
from 3.7% in April, a bigger than forecast drop. Much of the month's corporate
news was negative. Prudential was forced to abandon its $35.5bn takeover of
American International Group's main Asian unit, and BP shares continued to
suffer as the oil giant agreed to put $20 billion into a compensation fund and
said it would cancel shareholder dividends for the first three quarters of this
year. Meanwhile, News Corp unveiled a £7.8bn bid for the 61% stake of UK
satellite-TV group British Sky Broadcasting that it does not already own; BSkyB
rejected the offer.
| Index | £ | € | $ | Local |
| FTSE All-Share | -4.62% | -0.81% | -1.31% | -4.62% |
US
After performing well for much of June, some weak economic news late in the
period undermined investor sentiment and saw a sharp slide in share prices into
month end. Fed Chairman Bernanke sought to boost confidence by saying the US
recovery remained intact and early economic news was supportive. Manufacturing
expanded in May for a tenth straight month, while industrial production rose by
the most since August. The University of Michigan consumer confidence survey
rose in June to the highest level in more than two years. However, three pieces
of data eroded investor confidence. New home sales declined by 10% in May and
retail sales declined for the first time in eight months, tumbling a surprising
1.2%. Consumer confidence also dropped sharply. In the corporate sector,
Caterpillar, whose stocks tend to be an economic bellwether, reaffirmed its
earnings forecast for 2010, but weaker-than-anticipated current year guidance
from Fedex undermined market sentiment. The technology sector meanwhile was a
source of good news for investors. Hewlett-Packard said it planned to spend
$1bn to automate data centres and shed 9,000 jobs. And Apple confirmed that it
sold in excess of three million iPads in the first 80 days after the launch and
1.7m units of the new iPhone in its first weekend.
| Index | £ | € | $ | Local |
| S&P 500 | -8.59% | -4.78% | -5.41% | -5.41% |
Europe
European stock markets performed well for much of June before sovereign-debt
risk fears re-emerged. The euro remained weak eroding returns for UK investors.
European economic news in the main was good. German unemployment fell by more
than twice as much as economists forecast, while German exports surged by 10.7%
in March, the most in 18 years. And purchasing-manager reports increased across
Europe, as businesses enjoyed the benefits of the weaker euro. The ECB left
rates unchanged at 1% and announced an extension to existing liquidity
measures. However, with sovereign debt worries spreading from Greece to Spain,
investors became more concerned about the health of Spanish banks, given the
country's high unemployment and weak housing market. In other corporate news,
Nokia slumped nearly 10% after the handset maker cut its earnings forecast for
the second quarter, citing competition and euro weakness. ABB bought Ventyx in
an all-cash deal worth more than $1bn and Banco Santander agreed to pay $2.5bn
for Bank of America's stake in Santander's Mexican unit. Meanwhile, BASF agreed
to buy German food and cosmetic-ingredients maker Cognis for €3.1bn.
| Index | £ | € | $ | Local |
| MSCI Europe ex UK | -3.64% | 0.38% | -0.29% | -1.15% |
Japan
June's key development was the resignation of Prime Minister Hatoyama after
a series of funding scandals. The final straw was a broken promise to relocate
US troops off of Okinawa. Naoto Kan became the fifth prime minister of Japan in
less than four years, easily winning the election for leader of the ruling DPJ.
In economic news, the final revision to Q1 GDP was higher than expected at
1.2%. Meanwhile, it was reported that core machinery orders rose by 4% in
April, a second straight month of gains, which suggested that capital spending
is recovering on strong Asian demand. However, the picture was confused when Q1
corporate capital spending was shown to have fallen by 11.5 percent year on
year. Bank of Japan Governor Shirakawa increased the central bank's efforts to
support economic growth with a $33bn programme aimed at encouraging lending to
businesses. And the Ministry of Economy Trade and Industry recommended a
reduction in the corporate tax rate to 35% (from the current 40%) starting in
2012. In the corporate sector, Nintendo shares surged when it unveiled its 3DS
handheld device at the E3 game conference in Los Angeles. And shares in Promise
rose higher after it revealed that it had won approval to open a
consumer-lending business in China.
| Index | £ | € | $ | Local |
| Japan Topix | -4.78% | -0.81% | -1.47% | -4.13% |
Asia Pacific
Asian markets rallied in June, but saw some of those gains eroded in the
last half of the month as investors abandoned perceived riskier investments.
Hong Kong and Singapore performed well, while Australia struggled but dominated
the news. Julia Gillard was sworn in as Australia's first female prime minister
after the surprise ouster of Kevin Rudd. The ruling Labor party suffered a
sharp drop in support after introducing a controversial mining tax opposed by
the industry. Gillard adopted a more conciliatory tone, and speculation that it
would be withdrawn benefited mining shares. Elsewhere telecom group Telstra's
shares rose on news that it was to receive A$11bn to help it phase out its
copper-wire network and transfer customers to the government-backed NBN
network, which will also be able to use Telstra's infrastructure. Elsewhere,
Singapore's manufacturing output increased by 5.2% in May, a rise of 58.6% year
on year. The city-state's Monetary Authority forecast that the economy would
grow by 9% in 2010, having revised it up from 6.5% in a previous survey.
| Index | £ | € | $ | Local |
| MSCI Asia Pacific ex Japan | -2.60% | 1.46% | 0.78% | 1.11% |
Emerging Markets
Emerging market equities were volatile in June. The main news in Asia was
the long-awaited trade pact between Taiwan and China, which will see China cut
tariffs on 539 items from Taiwan valued at $14bn - roughly 16% of the island's
2009 exports to the mainland. Chinese shares struggled as concern grew about
the impact of tightening measures on economic growth. Manufacturing growth
slowed more than estimated, and China's purchasing managers survey, though
positive, weakened in April. Property prices also showed that a government
crackdown on speculation was having an effect. Controversy over increases in
compensation to low-wage workers by Hon Hai (an electronic-components maker)
spurred a debate about wages in China. Elsewhere, Indian industrial production
grew by 17.6% in the most recent month, more than economists had predicted,
strengthening the case for an interest-rate increase. In Brazil we saw some
encouraging Q1 GDP data, which came in at 9% compared with expectations of
8.5%. Petrobras was forced to delay the sale of $25bn of stock until September
due to a delay in a related deal to buy oil reserves from the government. In
South Africa, business confidence fell for the first time in four months,
though manufacturing figures did show a faster than expected rate of growth in
April. In Hungary, new Prime Minister Orban announced plans to levy a tax on
banks and cut public spending as he sought to meet creditor-approved
budget-deficit targets.
| Index | £ | € | $ | Local |
| JP Morgan EMBI | 1.38% | 1.66% | 2.03% | 2.03% |
Government Bonds
Government bonds continued to do well in local currency terms in June. In
the UK the performance of government bonds (gilts) was broadly similar across
the yield curve, though short-dated gilts fared a little worse than the medium
and long-dated sectors. UK gilts rallied after the emergency budget revealed
significant measures to cut the deficit. The Bank of England left the base rate
unchanged. Bonds in the US and Japan also fared well, but European bonds lagged
counterparts elsewhere amid lingering concerns over its peripheral markets.
Moody's downgraded Greece four notches to junk status, but this was broadly
expected after the difficulties the country has faced this year. US treasuries
gained late in the month as economic news worsened, with ten-year yields
falling below 3% and two-year yields declining to their lowest ever level.
| Index | £ | € | $ | Local |
| JP Morgan Global Government All Stocks | -1.48% | 2.63% | 1.94% | 1.08% |
Corporate Bonds
June was a better month for corporate bonds, as risk tolerance improved.
Yield spreads with government bonds initially narrowed, but later widened again
as worries resurfaced over the European sovereign debt situation. The new issue
market revived early in the month, and around £7 billion was issued (mainly in
dollars and euros) in the first week of June alone. Porterbrook was the first
issuer in the sterling market, while other issuers in Europe included Total,
HSBC, Deutsche Bank and Teva Pharmaceutical. It took longer for the high-yield
market to rekindle. When it did, cognac maker Remy Cointreau launched the first
European high-yield offering in a month. The economic travails of Europe were
reflected in the relative attractions of its credit market. It was reported
that investors had become more nervous about owning European corporate bonds
compared with US issues. Standard & Poor's raised the ratings on 198 US
companies and cut 152 in the second quarter. In Western Europe there were 49
upgrades and 125 downgrades.
| Index | £ | € | $ | Local |
| FT Actuaries All Stocks | 1.50% | 5.74% | 5.03% | 1.50% |
Emerging Market Bonds
In June, notable data included strong GDP figures from Brazil and India
(8.6%), and an interest rate rise in Brazil (by 75 bps to 10.25%). Chile's
central bank also hiked its base rate by 50bps to 1%; a 25bps rise had been
expected. Meanwhile, the Mexican central bank kept rates unchanged for a tenth
straight meeting after annual inflation data slowed to within target range.
Hungary suffered its first debt-auction failure since it received IMF
assistance in November 2008; it was only able to raise 70% of its 50bn forints
target. Demand for Hungarian bonds was undermined when members of Prime
Minister Orban's new government said that officials from the previous
administration had lied about public finances and suggested that the nation was
at risk of a Greece-like crisis. In South Africa, consumer confidence fell, as
job cuts started to filter through to the economy. Retail sales were weaker
than expected at 8.2%. A figure of 10.1% had been expected.
| Index | £ | € | $ | Local |
| JP Morgan EMBI | 1.38% | 1.66% | 2.03% | 2.03% |