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Quarter in Review Q2 2022

Dynamic Share To Cash Strategy

Key themes

Inflation for longer

Central banks forced to act

Global growth downgraded

Markets snapshot

The MSCI AC World equity index fell -13.5% (-10.1% in €) as central banks turned increasingly aggressive on flighting inflation, bond yields rose further, and there were rising concerns around the growth backdrop.

The US fell -16.8% (-11.4% in €) as the US Federal Reserve, in response to upward surprises in inflation, guided towards a faster pace of interest rate rises and balance sheet reduction.

Europe ex UK fell -10.0% (-9.9% in €), as the European Central Bank (ECB) announced a major policy pivot and guided towards a more rapid removal of policy accommodation while growth concerns increased.

The UK outperformed, falling only -2.9% (-4.7% in €), benefiting from its higher weight in energy and commodity stocks and defensive sectors such as consumer staples and health care.

The ICE BofA Merrill Lynch Eurozone > 5-year sovereign bond benchmark fell -10.4% over the quarter, as eurozone inflation rose to a record high of 8.1% year-on-year, forcing the ECB to announce the cessation of asset purchases on 1 July and to guide towards the first interest rate rise in 11 years at the upcoming policy meeting in late July.

The euro fell to 1.0483 against the US dollar as the dollar benefited from its safe-haven status in the risk-off environment and rising interest rates.

Commodities rose 2.0% (8.6% in €) but were off their highs.

West Texas Intermediate oil rose to a high of $122 per barrel (bbl) during the quarter. By the end of June, the price had fallen back to $105/bbl as there were increasing concerns around demand in the slowing growth environment, leaving it 5.5% higher on the quarter.

European gas prices rose 18.4% as Russian supplies to Europe were reduced towards the end of June; Russia is thought to be ‘weaponising’ gas supplies in response to sanctions by the West.

Gold fell -6.9%, despite the risk-off environment, with the higher US dollar and higher US real yields acting as a drag.