Funny things are going on in financial markets. Equities, bonds, commodities and gold all made decent gains in June. Markets are anticipating interest rate cuts and further monetary stimulus. For now, central banks and governments fear slowing growth and deflation. President Trump’s tweet of 18 June neatly summed up what’s going on: “Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with it for years, along with China and others.”
The European Central Bank is concerned with a lack of growth and is paving the way to print more money. President Trump, meanwhile, is determined to ensure that the US does not suffer a strengthening dollar and is upping the pressure on the Federal Reserve. The market now expects two rate cuts in the US before the year-end. Government bonds have continued to rally; the yield on US 10 Year Treasuries fell to 2.0 per cent, the lowest since November 2016. Continental European government bonds also rallied with some extraordinary moves. In Switzerland, the 30-year bond yield turned negative; one has to pay the Swiss government for the privilege of lending it money for 30 years! In the meantime, the tension between the US and Iran increased, and the spectre of a full-scale trade war between the US, China and Europe still lingers.
US markets led the way, with the S&P 500 up 6.9 per cent. The technology-heavy Nasdaq did better, up 7.4 per cent as cheap money saw investors chasing growth. European markets did not miss out, with the Dax up 5.7 per cent, the Italian MIB up 8.7 per cent, the CAC 40 up 6.4 per cent and the FTSE All-Share (Total Return) Index up 3.7 per cent. The Nikkei 225 returned 3.3 per cent, and Russia was up 7.3 per cent, helped by the resurgent oil price. Brent crude gained 4.6 per cent to $64.54 a barrel. Other commodities did well, with copper and nickel up 2.8 per cent and 5.1 per cent, respectively. Concerns about where all this might end saw gold at its highest price in six years, up 7.8 per cent to $1,413 an oz. Bitcoin, seen by some as an alternative haven to gold, also participated, up 44.5 per cent (up 224% this year).