Our June investment & economic update looks at how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of May at 7,607.66 points, up 63.11 points or 0.84% during the month.
The investment & economic update showed markets across Europe started June on a positive note, despite a new warning about food inflation for UK retailers.
Europe enjoyed a broadly positive month in May, in stark contrast to US stocks, where a heavy technology weighting resulted in losses as investor sentiment turned negative.
The British Retail Consortium (BRC) reported that shop price food inflation rose to 4.3% in May, its highest level since 2011.
Helen Dickinson, BRC chief executive, warned the increase in food prices would “get worse before it gets better,” saying:
“With little sign that the cost burden on retailers will ease any time soon, they will be left with little room for manoeuvre, especially those whose supply chains are affected by lockdowns in China and the war in Ukraine.”
With rising price inflation and the prospect of tightening monetary policy, investor sentiment is likely to face growing headwinds throughout the rest of the year.
A new report from the Confederation of British Industry (CBI) forecasts that the UK’s growth outlook will “flatline” during the next quarter due to reduced consumer spending and the cost of living crisis.
The CBI is forecasting broadly flat private sector activity in the three months to August, its lowest expectation since February 2021.
UK companies are likely to experience a reduction in consumer spending, with inflation on track to peak again in October due to an increase in the domestic energy bills price cap.
Globally, the combination of rising prices and the ongoing Russian invasion of Ukraine is leading to stock market volatility.
US Runaway inflation
In the US, President Joe Biden is due to meet with Jerome Powell, chairman of the US Federal Reserve, to discuss a policy response to runaway price inflation.
In an interview, US Treasury Secretary Janet Yellen admitted she had been wrong about price inflation’s path but supported steps to bring inflation under control.
The Biden administration is taking steps to supplement higher interest rates, such as reducing the cost of prescription medicines and health care and increasing the use of renewable energy.
Russian gas supplies to Europe remain perilous, with the Netherlands the latest threatened by Russia with a cut to supplies following a refusal to pay for gas in roubles. The Netherlands receives 15% of its gas supply from Russia but anticipated the loss of supply by switching to other providers.
Russia has already cut off gas supplies to Poland, Finland and Bulgaria.
Another factor influencing market volatility during May was the continued lockdowns in parts of China, as they pursued a ‘zero Covid’ strategy. However, these lockdown measures, which added to supply chain disruptions, are eased as we enter June.
Following a two-month lockdown, the Chinese government eased lockdown measures in Shanghai, China’s economic centre and a global trade hub. Most people can now freely move around the 25 million person city, although 650,000 residents remain confined to their homes.
In Europe, the chief executive of German asset manager DWS, majority-owned by Deutsche Bank, is stepping down following a police raid on their offices over allegations of ‘greenwashing’.
German officials launched an investigation into whether DWS was exaggerating the green credentials of the investments it sold, a practice it denies.
The European Union (EU) agreed to a partial and phased ban on purchasing Russian oil, sending benchmark oil prices higher at the start of June.
Brent Crude rose to $117.31 a barrel, and US West Texas Intermediate was up to $116.34 a barrel following news of the partial ban that will cut 90% of oil imports from Russia by the end of the year.
While inflation is high worldwide, it is exceptionally high in Turkey, with the Turkish government blaming a ‘perfect storm’ in global markets for rising prices.
Turkey imports almost all of its energy, making it vulnerable to higher global prices. Price inflation in Turkey reached a 24-year high of at least 70%.
UK house price growth is slowing due to increased cost of living and higher interest rates, but prices continue to grow more quickly than wages.
Are house prices about to slow?
The latest figures from lender Nationwide show the annual rate of house price growth slowing slightly from 12.1% in April to 11.2% in May. Prices rose, on average, by 0.9% on a month-on-month basis in May.
The benchmark 10-year government bond (gilt) yield rose to 2.11% at the start of June, up from 1.96% a month earlier.