Monthly Commentary | July 23

 The June quarter ended with perhaps more confidence that the worst is behind us in terms of monetary tightening as the pace of further rate hikes looks likely to moderate (or even stop) for many markets. 

The monetary tightening which has been applied appears to be taking effect.  As we move in the second half of 2023 the debate should focus on the shape of the slowdown and which economies can glide into a soft landing. Bond yields have moved higher (sold off) to levels which fairly reflect medium term growth, plus inflation, plus risk premiums in most developed markets.

Equity markets, with the exception of the UK, find themselves sitting on strong June quarter and YTD gains led by the sectors that drove gains in Q1. Market leadership has continued to narrow, with the technology sector powering ahead as excitement built around Artificial Intelligence and its potential applications. Mega cap stocks once again significantly outperformed small and midsize peers over the YTD.

The economic picture is mixed by region or country as co-ordinated monetary policy gives way to nuanced policy and rhetoric as is required given the disparate approaches and consequences caused by COVID-19. With exception of the war in Ukraine, geo-political tensions have eased. Economically the United States is landing nicely, but we remain concerned and on watch regarding economic developments in China. Recent developments in Europe have not been particularly positive either. Germany’s IFO Business Expectations survey came in weaker than expected this month, as did the country’s factory orders and retail sales. Economic performance in France continues to look better than the Eurozone’s other big economy but is not strong enough to offset the weakness in its larger neighbour.