June Market Update: central banks successfully walk the tightrope

For financial professionals only

In a nutshell:

  • Falling global COVID-19 cases and the re-opening of economies means a strong economic forecast. The World Bank upgraded its 2021 growth projections in June.
  • The US Federal Reserve, the European Central Bank and the Bank of England held firm and voted to maintain the current low interest rates.
  • Equities rallied off the back of bullish sentiment, with the US market hitting a new high during June, whilst bonds remained steady
  • Markets were willing to look through short-term data and accept the narrative that inflation will be transitory.

What’s moving markets…

‘Transitory factors’

Following a higher-than-expected US inflation print of 5% for the 12 months to May, all eyes were on the Fed. In their June meeting the Federal Open Market Committee held firm, attributing the inflation reading to “transitory factors” as the economy re-opens from COVID-19 lockdowns. They also committed to the current pace of at least $120bn per month in asset purchases (for now) and kept the base rate at 0-0.25%.

However, what did change is their consensus view of how soon base rates will rise. In March they’d forecast rates wouldn’t rise until 2024, they now expect this to happen in 2023.

Across the pond

In the UK, the CPI rose to 2.1%, driven by rises in food, fuel and clothing prices. The Bank of England expects inflation to reach 2.5% later this year, but then fall back below the 2% target during 2022. Much like the Fed, the Monetary Policy Committee voted to keep the base rate unchanged. Similarly, in Europe, the European Central Bank maintained ultra-low interest rates and its bond-buying programme.

Global growth projections upgraded

Economic forecasts remain strong. The World Bank upgraded its global growth forecast for 2021 to 5.6%. That’s the fastest post-recession pace of growth in 80 years. However, growth is expected to be uneven, with a few major economies leading and emerging markets lagging due to less access to COVID-19 vaccines.

This generally bullish sentiment was reflected in equity markets, with all-time highs for the S&P 500 index during the month. Microsoft became the second company after Apple to reach a staggering market capitalisation of $2 trillion.

Bonds remained relatively stable, as markets looked through the short-term data and accepted the narrative of transitory inflation. At least for now, the Fed is successfully walking the tightrope between maintaining accommodative monetary policy to support employment, while also managing inflation risk and not spooking markets.

Asset class implications…


There were positive returns (in sterling terms) for all major regional equity markets. Growth outperformed value style stocks in general, as US bond yields fell marginally. Alternative energy stocks performed best over the month, although the traditional energy sector also performed well as oil prices rallied strongly.

The US led the pack through June, with Emerging Markets and Japan close behind. The UK was a laggard, however, giving back some of the recent outperformance. Perhaps a reflection of the relative attractiveness of the UK equity market, there’s been increasing private equity activity of late. The rejected $5.5bn for Morrisons supermarkets hit the headlines last month, following deals earlier this year including John Laing, Aggreko and Signature Aviation. Parmenion’s acquisition by Preservation Capital Partners also completed on 30 June, marking an exciting time for our business and the next phase of our growth.


The bricks and mortar property sector delivered a modest positive return over the month. Leading open-ended property funds have seen outflows stabilising during recent months. This enabled fund managers to maintain a high quality portfolio of assets. Rent collection is improving as the economy re-opens. However, the Aegon property fund closure was announced during the month, and questions will no doubt remain over the sector while the FCA consultation continues. Our view on the asset class remain unchanged and we continue to utilise its unique diversification characteristics.


Index-linked gilts ended the month marginally down. Conversely, there were positive returns for investors in conventional UK gilts, sterling corporate bonds and global bonds. Bond markets remain reasonably calm for now, but we expect to see increasing volatility over the coming months. This driven primarily by central banks’ attempts to communicate future plans for tapering their bond purchases and hiking interest rates. For this reason, we continue to support a flexible approach in Fixed Interest portfolios, staying overweight in Strategic Bonds. We see it as beneficial to be dynamic in duration positioning, as well as allocating between different regions and issuers in this environment.

Asset classes in numbers

FTSE Actuaries UK Conventional Gilts All Stocks TR in GB0.721.70-5.56-6.249.35
ICE BofA Global Broad Market Hedge GBP TR in GB2.121.06-4.64-9.267.51
IA UK Direct Property TR in GB0.731.712.031.55-0.27
FTSE All Share TR in GB0.165.6011.0921.456.28
FTSE USA TR in GB5.628.5013.4326.5159.49
FTSE World Europe ex UK GTR in GB1.808.2710.9122.8333.30
FTSE Japan TR in GB2.63-0.520.5411.5916.83
FTSE Asia Pacific ex Japan TR in GB2.544.066.2025.5734.95
FTSE Emerging TR in GB2.885.036.9624.1132.98

Source: FE Analytics, GBP total return (%) to last month end

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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