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The Cambridge Weekly – 12th June 2023


12th June 2023


Perspective News, The Cambridge Weekly

The Cambridge Weekly – 12th June 2023

Immaculate disinflation sentiment cheers investors

Another positive week in global stock markets, which seemed unremarkable given it has been fairly good since the beginning of May. However, looking more closely – as we do – two market dynamics tell us more market participants are warming up to the narrative that bringing inflation under control, while still achieving a soft landing for the global economy, may be what 2023 brings. First, stock market gains over the past two weeks have been spreading to the mid and small-cap market segments, rather than coming from just a handful of mega-cap stocks. Second, falling inflation expectations mean recent yield rises in the UK have bumped up real yields, which can be interpreted as a sign of rising confidence.

May review – room for improvement but on the right track

Looking at aggregate returns for last month, you might think May was a dull affair for capital markets. In sterling terms, global equities were practically flat, gaining just 0.3%. This matches the small climb seen over the last three months: sterling investors saw the value of their global stock holdings grow 1% through the spring. But the seemingly prosaic headline figures hide some stark variation and nerve-wracking volatility. Markets bounced from fear to excitement and back, with the biggest concerns coming from the US debt ceiling drama and disappointing Chinese growth. As ever, the interplay between growth, inflation and expectations for central bank policy were key – leading to some regions and sectors being much more harshly punished than others. The table below shows returns for May across major regions and asset classes.

Japan’s new rising sun?

Japan is having a moment. Over the last three months, Japan’s stock market has been the best performing of all the headline regions we keep track of, in sterling terms at least. In the middle of May, the TOPIX index made a rare appearance in the UK financial media for reaching its highest level since the asset bubble burst in 1989. From the start of June, it has taken another leg up, rallying strongly last Monday and Tuesday, then moderating a little after that.

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