Written by Chris Ayton.
As a classic but relatively wet Wimbledon fortnight ended, with nearly 200,000 servings of strawberries having been eaten, global equity markets were in no mood to be dampened with the MSCI All Country World Index up +1.1% in Sterling terms. Asian equity markets led the charge with MSCI AC Asia Pacific ex-Japan Index up +3.7% for the week, closely followed by Continental Europe with MSCI Europe ex-UK up +3.6% for the week. Japan was the laggard, as MSCI Japan fell by -0.3% over the week in Sterling terms.
The UK FTSE All Share Index was up a healthy +2.6% over the same period, despite news that UK GDP had contracted 0.1% in May. This data was marginally better than expected and came alongside other data showing that UK wages grew faster than expected in the three months to May. The inflationary impact of these wage hikes fuelled further fears of more interest rate rises in the UK and helped push Sterling up to more than $1.31 against the US Dollar. It’s hard to believe this exchange rate was just $1.07 in September of last year.
Conversely, in the US we saw further signs that inflation there is coming under control. The annual inflation rate in the US fell to 3% in June, which was below expectations and the slowest increase since March 2021. This has sparked some speculation that the Federal Reserve could soon be done with its interest rate tightening cycle, although policy makers are saying they are open to further action.
The technology dominated Nasdaq Index in the US crept up another +1.2% over the week, taking its rise to an astonishing +31.1% for this year so far in Sterling terms (and +42.9% in US Dollar terms!). As discussed here previously, this rise has been driven by the six largest index constituents, namely Apple, Microsoft, Amazon, Alphabet, Tesla and NVIDIA. So dominant has their collective size become that Nasdaq announced last week that it would be undertaking a “special rebalance” to redistribute some of their index weightings to smaller constituents, cutting their combined weighting from over 50% of the Nasdaq Index to just 40%. Clearly, this will have implications for the hundreds of billions of Dollars that are invested in ETFs and index funds that track the Nasdaq Index, but it remains to be seen if this will have any impact on the relative performance of the Big Six going forward.
