Global credit markets have had a particularly difficult month with negative returns across all asset classes.
Things to remember:
- Global credit markets had a particularly difficult month with negative yields across all asset classes as spreads widened and the market priced in slower growth and a possible recession.
- In the United States, economic indicators (including consumer confidence, personal spending, etc.) were worse than expected, leaving investors speculating about when the Federal Reserve (Fed) might stop raising rates (or even cut them) to support economy
- In Europe, assets were also revalued due to fears of inflation and gas shortages.
- In emerging markets, looking for some recovery in market confidence, we are looking to Asia, where regional growth drivers could benefit from stimulus measures in China and Japan, as well as aggregate domestic spending from untapped savings following the Omicron COVID-19 wave. Rising activity in Asia could also help remove bottlenecks in the supply chain, which is one of the causes of excessive inflation.
The US fixed income month was particularly difficult, with negative returns across asset classes as spreads widened and the market priced in slower growth and a possible recession. US markets ended the month in a risk-free mode as liquidity dried up ahead of the holiday weekend, with economic signals and earnings reports more clearly pointing to a slowdown. Economic indicators (including consumer confidence, personal spending, etc.) were worse than expected, leaving investors speculating about when the Federal Reserve (Fed) might be forced to stop raising rates (or even cut them) to support the economy . Treasuries rose at the end of the month (prices up, yields down), ending June almost where it started. It is important that the current deteriorating economic environment allows rates to be contained, which have been broadly stable (except for short rates) for two months. Commodities are well behind their highs and inflation expectations have dropped significantly.
European fixed incomes posted negative returns during the month as spreads widened and the market assessed slower growth and a possible recession. Assets were also revalued due to fears of inflation and gas shortages. Given fears of a gas shortage from Russia in the second half of the year, investor sentiment remains mixed and the question remains “what can central banks do?” It seems that the market will continue to wait until the summer. During the month, interest rates on investment-grade bonds rose slightly as rates began to fall as investors doubted the ECB would be able to implement the planned hike. News of a proposed anti-fragmentation tool (AFT) to support peripheral sovereign spreads is likely to be needed for the market to refocus on significantly higher rates in Europe.
Emerging markets posted negative returns as credit spreads widened as economic signals and earnings revisions pointed to slower growth and a possible global recession. In the United States, economic indicators (including consumer confidence, personal spending, etc.) were worse than expected, prompting investors to speculate about when the Federal Reserve (Fed) might stop raising rates (or even cut them). ) to support the economy. Prices for industrial products fell to reach a more stable level. Oil prices peaked in March and closed lower in June compared to May as global authorities prioritized energy price stability at the consumer level.
Pending a recovery in market confidence, we look to Asia, where regional growth engines could benefit from stimulus measures in China and Japan, combined with domestic spending from savings stifled in the wake of the Omicron COVID-19 wave. China’s preliminary home sales data for June rose significantly, a positive indicator of the economic recovery. The lowered lockdown restrictions and the ban on using the National Social Health Insurance to fund testing suggest that mass lockdowns in China are less likely in the future. Rising activity in Asia could also help remove bottlenecks in the supply chain, which is one of the causes of excessive inflation.
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