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Archinomics Monthly - June 2023

one year ago



Global equities rallied over June. Japanese stocks continued to lead the advance, with the TOPIX Index rising 7.4% on strong overseas demand. US indices recorded solid gains (S&P 500 +6.5%) with the rally broadening out from just tech companies, helped by strong economic data. European equities also moved higher (EuroStoxx 50 + 4.3%), but UK shares trailed (FTSE 100 +1.1%) amid fears that a sharp recession might be needed to tame persistent UK inflation. Chinese stocks initially rebounded on hopes of further stimulus, but later lost some ground on disappointment over the size of the support offered (MSCI China +3.4%).


Government bond markets sold off as western central banks stuck to their hawkish policy stance, emphasising that interest rates had yet to reach their peak. Yield curves inverted further, as the largest increases in yields were seen at the short end of the curves. In the US, the difference between 2 year and 10 year bond yields exceeded 100 basis points (bps), a degree of inversion that was last seen in 1981. In Germany, 10 year yields traded up to 90 bps below 2 year yields – such an occurrence was last seen in 1992. An inverted yield curve is usually considered a strong predictor of forthcoming recession. In general, corporate bonds outperformed sovereign debt.


The euro strengthened against the US dollar, as the European Central Bank continued to raise rates while the Fed paused its rate hiking cycle. Meanwhile, the Japanese yen continued to weaken as the Bank of Japan maintained interest rates at -0.1%.


Oil prices rose slightly, with Brent crude increasing 3.1% to $74.9 a barrel, while natural gas prices jumped to a two month high. The price of gold, which reached a record high in early May, continued to retreat, dropping 2.2% over June to $1,919.40 a troy ounce.

Market Volatility

Market volatility

Volatility fell as the threat of a US default subsided, with the Vix Index remaining below the 20 level which is usually viewed to be an indicator of market stability. Overall the Vix Index fell 24.2% over the month to close at 13.6.

Responsible investing

Anti-ESG investing is gaining prominence in the US, with Republican lawmakers aiming to change the rules that govern asset managers. Their specific aim is to require managers to prioritise financial returns above any non-monetary factors in investment decisions.


The US Federal Reserve (Fed) paused its rate-hiking stance for the first time in 14 months as it waits to see how the significant hikes already implemented will feed through into the economy. Nevertheless, policymakers indicated that investors should expect at least two more rate hikes this year.

In Europe, central banks continued to raise rates, with the Bank of England accelerating the pace at which it did so following stubbornly high inflation for May. In contrast, China’s central bank cut its key borrowing rate for the first time in around a year, amid further evidence that the Chinese economy might be slowing.

In an extraordinary 24 hours, Yevgeny Prigozhin, the head of the Wagner Group of mercenaries, turned on President Vladimir Putin. Mr Prigozhin took over a key Russian command post and reportedly came within 200 kilometers of Moscow – only to subsequently retreat into Ukraine and relinquish control of his forces, after he was banished to Belarus. 


on the

To date, the US economy has proved remarkedly resilient to higher interest rates, with US GDP expanding by 2.0% on an annualised basis in the first quarter, helped by stronger consumer spending. Looking forward, it will pay to keep a close eye on the job market for signs of slowdown. Markets expect the Fed to raise rates by a further 25 bps in July.

While the People’s Bank of China cut one and three year prime loan rates in June, this disappointed investors who were looking for larger reductions. The authorities may do more to stimulate growth in the Chinese economy, not least the recovery in the housing market which shows signs of weakening.

Headline eurozone inflation is now at 5.5%, its lowest level since January 2022, but the European Central Bank (ECB) is expected to continue to raise rates in July. ECB president Christine Lagarde recently stressed that eurozone interest rates still have some way to rise, as increasing labour costs are offsetting falling energy prices.


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