The global economy showed a mixed performance in June, particularly regarding progress on inflation. In the US, headline inflation decreased to 4%, which came in below expectations; however, core inflation remained stubbornly high. In the UK, core inflation continued to accelerate, prompting the Bank of England to increase interest rates by 0.5% to 5%, and for the market to anticipate nearly five more 25bps interest rate hikes from here.
Central bankers gathered in Sintra in Portugal for their annual ECB Forum. At a panel interview with the big four (Fed, ECB, Bank of England and Bank of Japan), they reaffirmed their view that, with the exception of the Bank of Japan, they have carried out a large portion of their hikes. Looking ahead, some additional hikes are likely but decisions will be data dependent, taking into account the evolving inflation picture.
Equity markets were positive over the course of the month, with the US once again leading global markets with further large gains in stocks within the technology industry. Elsewhere, returns were more muted, with the UK lagging over the month.
Within fixed income, market returns were mixed with shorter dated bonds coming under pressure due to stickier inflation numbers and hawkish rhetoric from central banks.
Within alternatives, UK commercial property was weaker over the course of the month, as higher gilt yields weighed on the asset class. Within diversifying assets, returns were mixed, with weakness in the Japanese Yen. The Yen is now over 30% undervalued versus Sterling based on purchasing power parity, a level rarely seen in the last 30 years. Finally, our holding in the AQR Style Premia fund performed strongly over the course of the month, building on the strong performance over the last two years.