June Markets – update

Market Commentary – Week of 15 June 2020

Markets moved firmly into risk-off mode at the end of last week. There was no clear economic catalyst. But
ongoing protests in the US, concerns about a second wave of infections globally, and some profit taking after
a strong market rally contributed to the moves lower in equities.

Data continue to point to monthly economic improvement as lockdowns are eased. Consumer confidence
improved in the US and Australia. Business conditions and confidence also improved in Australia. The final
reading for Q1 Eurozone GDP was revised higher, albeit remaining negative.

The Fed acknowledged the improvement but warned that the outlook remains very uncertain. Fed Chair
Powell committed to leaving rates at current low levels through to end-2021. The Fed also warned that there
could be structural damage to the economy from the impact of covid-19.

Markets broke lower on Thursday with more than 5% declines in the US. Other global markets followed lower,
although there was a small recovery on Friday. The UK was among the worst performing indexes. Uncertainty
remains especially elevated in the UK as a focus has returned to Brexit and the risks to the UK and the EU
from a messy decoupling.

Credit markets also suffered. High yield spreads widened 61bps over the week. Investment grade bonds were
less impacted. Safe-haven assets including gold, the USD and longer-dated high quality sovereign debt all
performed well. The US 10-year Treasury yield was 19bps lower. Longer-dated yields fell further than shorterdated yields, narrowing the yield curve spread and impacting financial equities globally.

 

Data and Chart Sources: Oreana Financial Services and Bloomberg.

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