Global equities fell for the first month in eight after the Federal Reserve reiterated it was mulling tighter monetary policy. Chairman Ben Bernanke said the US central bank was poised to cut bond purchases. Laying out a path for reining in policy, the central bank chief said ‘Quantitative Easing’ could end by the middle of 2014 when unemployment is around seven per cent. It currently stands at 7.6.
Investors fear the withdrawal of some of the extraordinary policy measures which have supported markets since the financial crisis of 2008.
While declines were widespread, emerging-market and Asian equities fared worst as international investors responded to reduced liquidity, and fresh signs of economic problems in China.
International government bonds fell, led by US Treasuries, after Bernanke’s remarks. Ten-year US yields rose above 2.6 per cent for the first time since August 2011 before falling back towards the end of the month after a number of other central bankers, including some of Bernanke’s own colleagues, attempted to allay market fears of aggressive policy tightening. The head of the New York Fed said a rise in short-term rates is very likely to be a long way off, while the outgoing governor of the Bank of England warned financial markets had “jumped the gun”.
Meanwhile European Central Bank chief Mario Draghi said policy will stay accommodative for the “foreseeable future”. News French consumer confidence slumped to its lowest level since 2008 helped explain why.
European corporate bonds produced negative returns in tandem with underlying euro zone government debt. Credit spreads – the difference between yields on corporate bonds and government debt – widened as investors took profits on riskier assets, such as bonds issued by companies based in so-called ‘peripheral’ euro zone countries.
However, both corporate and government bond prices recovered somewhat after Draghi’s remarks, and similarly dovish statements from a number of other central bankers.
Despite the market falls in June, it’s been a strong year for equities so far:
MSCI World Index is +10% year to date and +16% over 1 year.
ISEQ is +18% year to date and +29% over 1 year.
FTSE 100 is +8% year to date and +16% over 1 year.
S&P 500 is +14% year to date and +21% over 1 year.
Source: Aviva Investors & Bloomberg.