Central banks offer unprecedented support
Economies cautiously re-open
Equities produce their best quarterly returns since 1998
Over the quarter, the MSCI AC World equity benchmark rose 18.4% (16.6% in euro terms).
The US rose 21.8% (18.9% in euro terms) as the scale of both fiscal and monetary stimulus programmes exceeded those in other regions. The US also benefited from its relatively heavy weight in technology stocks, which performed relatively well and were seen as beneficiaries of the dislocations caused by Covid-19.
Emerging markets rose 16.8% (15.5% in euro terms), benefiting from a weaker US dollar. This tends to be positive for emerging markets, which were also sensitive to the improving global growth backdrop.
The UK lagged rising 8.2% (5.3% in euro terms), with Brexit-related uncertainty continuing to drag. Meanwhile, the market was also impacted as the UK experienced the largest number of Covid-19 infections and fatalities across Europe.
Japan underperformed too, rising 11.6% (9.1% in euro terms) as the economic recovery from the April lows seems set to lag the rest of the world.
The ICE BofA Merrill Lynch Eurozone > 5-year sovereign bond benchmark rose 2.4% as peripheral spreads narrowed on the back of an increase in ECB asset purchases.
Peripheral spreads were also supported by the proposal to include €500bn of grants in an EU Recovery Fund, which effectively involves a fiscal transfer from core to peripheral countries. This was seen as an important step towards greater integration across Europe and a significant sign of support for peripheral regions from the core northern countries.
German 10 year yields ended the quarter up 2 basis points (bps) at -0.45%; Italian 10-year spreads fell to 171bps; and Spanish spreads narrowed to 92bps.
European investment-grade corporate bonds rose 5.2% as spreads fell to 147bps on easing concerns over potential defaults on the back of the improving growth outlook and ongoing ECB purchases of investment-grade corporate bonds.
The euro rose against the US dollar to 1.1243, benefiting from greater commitment on the part of both political and monetary authorities to implement supportive policies. These were seen as boosting the medium to long term outlook for the Eurozone.
Commodities rose 10.5% (7.9% in euro terms), supported by a better demand backdrop due to the improving growth outlook.