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July 2018 - a look at last month's markets

05 July 2018  10:15 GMT    James Timpson

Recent market volatility has been brought about by the ongoing trade war between the US and China. Last Monday the FTSE 100 index fell more than 2% its biggest one day movement since the market downturn in February. Chinese stocks have been hit particularly hard, with the MSCI China index tumbling more than -7% in the last two weeks.

There was some good news for the UK economy last week as the economic growth figure for the first quarter of the year was revised upwards, partly due to better than expected growth in the construction sector. The pound reacted strongly to the news, gaining 1% against the dollar in one day. Earlier in the month the Bank of England voted to keep interest rates at 0.5%, but signalled that a rate rise in August was more likely than previously thought. The improved economy growth figures will also increase the chance of a rate rise.

The FIFA World Cup is in full swing and – coincidentally or not – the Russian stock market has been doing well. Since the competition began, the MOEX Russia index, which measures the performance of the most liquid Russian stocks on the Moscow Stock Exchange, has risen +2.55%. During the same time the FTSE 100 index and the MSCI World index have posted negative returns of -2.61% and -2.46% respectively.

June was another mixed month for developed equity markets. The FTSE 100 index slipped -0.23%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index, declined -0.06% and -1.24% respectively. In the US, the S&P 500 index rose +0.62%, while in Europe the Eurostoxx index lost -0.16%. The Topix index, which measures Japanese equities, dropped -0.76%.

Emerging market returns were mostly negative, as the MSCI Emerging Markets index fell -2.40%. Latin American equities, measured by the MSCI Latin America index, returned -1.38% while Chinese equities had a particularly difficult month as the MSCI China index tumbled -5.14%. In India, the IISL Nifty 50 PR index was fairly flat at -0.20%.

Fixed income returns were also disappointing. UK government bonds, measured by the FTSE Gilts All Stocks index, lost -0.56% and long dated (over 15 years to maturity) gilts dipped -0.95%. In the corporate market, European corporate bonds, measured by the Markit iBoxx Euro Corporates index, moved -0.05% while sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, declined -0.50%. In the high yield market, the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index returned -0.45% and -0.03% respectively.

In the commodities market, the S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, gained +1.45%. The price of a Brent crude oil contract jumped +3.22%. The precious metals had mixed fortunes, with the S&P GSCI Gold and Silver indices returning -1.41% and +0.51% respectively. In the agricultural markets, corn and wheat moved -1.68% and +3.09% respectively.

In the FX market, it was a mixed month for sterling. The US dollar and the euro appreciated against the pound by +0.68% and +0.61% respectively while the yen declined -1.06% versus the pound.

(All the above returns are reflected on a local currency basis i.e. they do not factor in any relevant currency movements. Unless accompanied by PR (Price Return), they do include income).

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