Markets continued to be volatile in June but both equity and bond markets ended the month modestly higher. After initial weakness at the start of the month, a ceasefire between the United States and Iran, formalised in a Memorandum of Understanding signed at the Palace of Versailles on 17 June following the G7 summit, was the catalyst for a sharp relief rally across risk assets. Under the surface, there was significant rotation within equity markets.
Global equity performance was mixed over the period, with a large divergence in performance across themes. The iShares Nasdaq US Biotechnology ETF and L&G Healthcare Technology & Innovation ETF delivered positive returns, offset by the iShares Global Clean Energy ETF reversing gains from the previous month. US equities generated slightly positive returns, supported by US dollar strength. Our allocation to the Pacific North American Opportunities fund supported the contribution from the US equity sleeve, with the fund returning 7.1% over the month. UK equities also had a positive month, mainly driven by FTSE 100 strength in financials, industrials and a handful of internationally diversified blue-chips. Our exposure to emerging markets was a detractor to performance over the month after a period of very strong performance.
Sovereign bond markets moved higher even as several central banks, including the Bank of Japan and the ECB, raised interest rates to push back against lingering inflation pressures. The US Federal Reserve held its policy rate steady in June, but the meeting carried added significance under new chair Kevin Warsh, who struck an early hawkish tone, signalling a willingness to raise rates further should inflation risks resurface. Somewhat counterintuitively, this firm stance appeared to reassure markets on the Fed’s inflation credibility, helping underpin a broader Treasury rally over the month.
Among the most important developments of the month was the sharp fall in oil prices, which moved back in line with pre-Iran War levels. This helped ease inflation concerns and supported the broader stabilisation in risk assets. Gold and gold miners fell over the period, as higher real yields and hawkish comments from Fed chair Warsh weighed on the gold price.
