Chinese markets had a volatile month as the latest economic data raised questions about the state of China’s economy. Profit at industrial firms was down 0.3% from one year ago and factory activity had seen its worst performance for fifteen months. The Shanghai Composite index, which tracks the performance of shares listed on the Shanghai Stock Exchange, fell 8.5% in one day – its biggest daily drop in eight years. There were more than 1,500 individual companies which fell by their daily downward limit of 10%.
The Chancellor of the Exchequer, George Osborne, delivered the first Budget for a majority Conservative government since 1996. He predicted that the economy would grow by 2.4% in 2015 and that one million extra jobs would be created by 2020. Government borrowing is expected to fall every year until 2019/20 when it will reach a £10 billion surplus. A new minimum wage of £7.20 per hour will be introduced in April 2016 and this will rise to £9 in 2020.
In the UK labour market, the number of people in work fell for the first time since February to April 2013. According to the Office for National Statistics (ONS), from March to May 2015 there were 67,000 fewer people in work than in the three months ending February 2015. However, the unemployment rate is lower than it was a year ago, currently at 5.6%.
The likelihood of the US increasing its interest rates this year remained strong as the Federal Reserve indicated that it is more positive on the US economy. However the Central Bank has unanimously agreed to keep rates close to zero for now and there is still no clear indication of when exactly rates will rise.
July was a lot more positive than June for developed equity markets. In the UK, the FTSE 100 index returned +2.76% during the month, the FTSE 250 (ex IT) index returned +1.05% and the FTSE Small Cap (ex IT) index returned +1.14%. US equities, measured by the S&P 500 index, returned +2.10% while European markets, measured by the Euro Stoxx 50 index, had a particularly good month as they returned +5.24%. The Topix index, which measures Japanese equities, returned +1.79%.
Emerging market equity returns were mostly negative, as the MSCI EM (Emerging Markets) index returned -4.29% during the month. As mentioned, it was an especially bad month for Chinese equities, with the MSCI China index returning -10.75%. Indian equities, measured by the IISL CNX Nifty PR index, returned +1.96% and Latin American markets, measured by the MSCI EM Latin America GR index, returned -2.39%.
It was another poor month for commodities. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, fell by -14.10%. Brent blend oil, measured by the Oil Price Brent Crude PR index, fell by -17.90% in the month. According to the S&P GSCI Gold and Silver indices, the price of gold fell by -6.73% and silver fell by -5.36%. Agricultural commodities, after seeing large rises in June, fell back again in July as corn returned -11.65% and wheat returned -18.92%.
Bond market returns were positive during the month. The Bank of America Merrill Lynch Euro High Yield index returned +1.15% and the Bank of America Merrill Lynch Sterling High Yield index returned +0.83%. In the domestic sovereign bond market, the FTSE Gilts All Stocks index returned +1.60% with long dated (over 15 years to maturity) returning +3.14%. Overseas, European government bonds, measured by the Markit iBoxx Euro Sovereigns index, returned +2.31% while European corporate bonds, measured by the Markit iBoxx Euro Corporates index returned +1.20%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, returned +1.76%. Emerging Market sovereign debt, measured by the JP Morgan EMBI Global index, returned +0.41%.
In the currency markets, the US dollar rose slightly against the British pound, appreciating by +0.78%. The euro and the Japanese yen both depreciated against the pound by -0.06% and -0.46% respectively.
James Timpson CFA, BSc (Hons), IMC
(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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