Monthly market update June '20
Global equity markets continued their strong rebound in June, with most regions experiencing solid gains over the month. This was despite the continued spread of COVID-19 across the globe, with the number of overall cases surpassing 10 million towards the end of June. Markets have continued to be aided by significant government stimulus, intervention in financial markets by central banks, as well as the gradual easing of restrictions in many countries more recently, including in the US. This easing has occurred despite the number of new cases in the US continuing to trend upwards, with the US, as well as Brazil and India, continuing to see significant increases in the number of new cases each day. Locally, where the virus has been more successfully controlled, concerns have remained around a ‘second wave’ of infections, particularly in Melbourne, which saw a spike in new cases late in the month.
US equity markets sustained their recovery in June, with the S&P 500 Composite gaining another 2.0% (in local currency terms), helped by better than expected economic data released during the month. This included employment figures, with the US unemployment rate falling to 11.1% from 13.3% (which, although high, was much better than the 12.3% expected). The Federal Reserve met in June and, as expected, left the Federal funds rate at a range of 0.00% – 0.25%, and further indicated that rates will remain low for an extended period time until “the economy had weathered recent events”. The prospect of negative interest rates still remain an unlikely proposition for the Fed, unlike other central banks, despite increasing calls from some parties for it to be considered, including President Donald Trump. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 58 in June, from 37 in the previous month, which was comfortably above market expectations. Similarly, the Markit US Manufacturing PMI again improved to 49.8, from 39.8 in May. Although this was an improved result from the previous month, any number below 50 still signals a contraction in manufacturing activity.
The Chinese equity market also had a positive month, returning 4.6% (in local currency terms), as measured by the Shanghai Composite Index. This was despite an increase in COVID-19 cases in Beijing (which saw some lockdown measures being implemented as a result), continued tensions with the US, and civil unrest in Hong Kong with the passing of a new security law seen as weakening the “one country, two systems” approach. There continued to be steady economic improvement in China, with the Caixin Manufacturing PMI increasing to 51.2 in June, from 50.7 in May. The CNY also appreciated against the USD by 1.0%, with 1 USD buying 7.07 CNY at the end of the month.
European equities, as measured by the Euro Stoxx 50 Index, had a very strong month in June, returning 6.4% (in local currency terms). The Eurozone PMI Composite Output Index also increased over the month to 48.5 in June (from 31.9 in May), although this still signalled a contraction overall. The Eurozone Consumer Economic Sentiment Index printed at -14.7, which improved from -18.8 in May (-100 indicates an extreme lack of confidence, 0 neutrality and 100 extreme confidence).
Australian shares, as measured by the S&P/ASX 300 Accumulation Index, also had a positive month, returning 2.4%. Most sectors gained ground over the month, with Consumer Discretionary (5.1%), Consumer Staples (4.8%) and Financials (4.3%) the best performers, whilst Telecommunication Services (-0.3%), Industrials (-1.6%) and Energy (-2.1%) were the weakest. In June, Australian GDP figures for Q1 were released, with the Australian economy shrinking 0.3% over the quarter. These numbers all but confirmed that Australia is in a recession, given the extreme likelihood of another fall in Q2 due to lockdown measures that were in place for most of the quarter. The RBA also met at the beginning of July, keeping the cash rate at 0.25%, as expected. The Ai Group Australian Manufacturing PMI increased to 51.5 in June, from 41.6 in May, indicating an expansion of the manufacturing sector. The Australian listed property market fell by 1.2%, as measured by the S&P/ASX 300 A-REIT Accumulation Index, underperforming the broader market index by 3.6%.
Major global bond yields were largely flat in June, with the Australian 10-year Government bond yield falling 1bp to 0.88%, the U.S. 10-year Government bond yield rising 1bps to 0.65%, the UK 10-year Government bond yield falling by 1bps to 0.17%, and the German 10-year Government bond yield falling by 1bps to
-0.46%. The Italian 10-year Government bond yield had a larger fall of 16bps, ending the month at 1.33%.
The Australian dollar continued its very strong recovery, increasing a further 3.5% over the month against the USD, and finishing June at 69.0 US cents. Similarly, the Trade Weighted Index closed at 60.0 for the month, up from 58.8 at the end of May, demonstrating the appreciation of the AUD against the currencies of its major trading partners.
Note: This investment commentary does not constitute advice. All investment figures quoted relate to before-tax performance of the relevant industry benchmark. © 2020 Willis Towers Watson.
This information is general information only and does not take into account your individual objectives, financial situation or needs. Accordingly, before taking any action, you should consider whether it is appropriate to you, having regard to your objectives, financial situation and needs. You should obtain a copy of legalsuper’s Product Disclosure Statement (PDS) which is available by contacting legalsuper or via its website at legalsuper.com.au before making a decision. Past performance is not a reliable indicator of future performance