Global Market Insights: June 2023

World markets summary:

June was generally a positive month for stock markets as returns broadened out in the US. Europe and Asia also climbed whilst the UK lagged behind. A key economic theme of the month has been the divergence in central bank policy. The US Federal Reserve paused their interest rate hiking cycle in June, whereas Europe carried on with a 0.25% hike, and the Bank of England surprised markets with a 0.50% increase. In Asia, Japan held firm with their ultra-loose policy and China began their interest rate cutting cycle in an attempt to boost growth.

Inflation generally declined in western markets, with the exception of the UK, which saw its third consecutive increase in core consumer price inflation, hence the unexpectedly large rise in interest rates. Economic growth proved to be resilient in the US, supported by housing and durable goods, perhaps surprisingly as they showed signs of weakness earlier this year. Europe dipped into a technical recession after two small consecutive declines in real gross domestic product (GDP) growth.

Bond yields, especially in the UK, rose at the short end of the curve, with 2-year bond yields sharply rising. It was a similar story in the US and Europe, albeit to a lesser extent.

Our in-depth views on:

Our weightings are based on sterling as a base currency.

United Kingdom (UK)

UK shares generally lagged global peers with the FTSE 100 eking out a small gain while the FTSE 250 and small capitalisation indices fell a little. British shares were buffeted by investors reassessing where interest rates were going to end up after the Bank of England’s surprisingly aggressive 0.50% hike at their June meeting. Investors increasingly fear that higher than expected rates will cause more damage over time to the real economy and financial markets alike. This is why small and mid-capitalisation underperformed despite a strong currency, which usually helps them.

After a long hiatus due to interest rates rising, we did see the return of corporate market activity in UK mid-capitalisation as Lookers PLC was taken over at a 40% premium to the prevailing price. Although higher interest rates make debt more expensive, we expect private equity and foreign companies to return and buy more UK companies in order to take advantage of the valuation discount on offer relative to peers.

United States (US)

Whilst the first five months of 2023 were characterised by the narrowness of the market, a market distinguished by a low number of buyers and sellers, breadth returned in June as all 11 sectors in the S&P 500 rose. Small-capitalisation companies led the way rising more than 8% with large-capitalisation indices not far behind. Once again, the Nasdaq outperformed both the Dow Jones and S&P500, although it was a noticeably broader market than in prior months.  

Markets were buoyed by the Fed’s decision to pause their cycle of rising interest rates for the first time in their last 11 meetings.  Even though the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, showed some weakness in private consumption, other parts of the economy picked up the slack as US economic growth proved resilient.


European equities rose in June despite some evidence of economic weakness. GDP figures released in June showed that the European economy has fallen into a shallow recession after Q4 2022 numbers were revised downwards and Q1 2023 equally showed decline. Several activity surveys implied that this downturn might have continued in the most recent quarter (Q2 2023) yet despite this, markets have continued to eke out gains.

This disconnect was particularly evident in Germany which saw several weak data releases, including industrial production and factory orders as their manufacturing malaise continued. Nonetheless, the market rose just over 3%, perhaps helped by evidence that producer price inflation (PPI) is now negative, as well as a slowdown in overall headline consumer price inflation.

The European Central Bank (ECB) went ahead with a further 0.25% interest rate hike as inflation remained above target. This led to a modest increase in bond yields. The Eurozone unemployment rate hit a record low, going back to 1998, which is further evidence of the tightness of labour markets and part of the problem facing central banks in their quest to bring inflation down towards their 2% target.

Asia and Emerging Markets

In Asia, Japan once again led the way with the Nikkei 225 returning over 7% in local currency. However, a fall in the yen offset most of this gain for sterling investors. After a torrid couple of months in 2023, stocks in Hong Kong rebounded slightly, rising by nearly 4%. The more onshore orientated Shanghai Index was flat as the economic recovery continued to slow more than expected and the small interest rate cuts enacted, whilst welcome, will not on their own do much to ignite investor interest. The Chinese Premier pledged at the World Forum at the end of June that the government would promote development and accelerate the ‘Green Transition’ as part of a plan to boost demand and invigorate markets.

India, Taiwan and Vietnam all posted solid gains but Korea, Thailand and Indonesia were somewhat muted.

In general, the domestic interest rate cycle is less of a hindrance in the region but some economies, where export of manufactured goods is more important, have been struggling.

As Western interest rate fears fade and the impact of measured Chinese stimulus comes through, we see upside in absolute terms and are indeed confident of strong performance relative to other markets too.

Fixed Income

The very sharp rises in short term government bond yields was the big story of June, with the UK two year bonds seeing a particularly dramatic increase. The US saw the next sharpest rise with the rise in Europe noticeable, but not as dramatic. UK rates increased due to the second consecutive increase in core inflation whilst in the US, markets generally ignored the fact that the Federal Reserve paused rate hikes and instead focussed on stronger economic data and speeches from Federal Reserve Governors which implied the pause was only temporary.

Bond markets in Asia are not seeing as extreme moves, as those witnessed in the West, and indeed China saw its bond yields fall a little as several different interest rates were cut by 0.10% in an attempt by the authorities seek to re-accelerate economic growth, albeit in a measured manner.

In the West, yield curves are further inverted, meaning yields on short-dated bonds exceed those on long-dated bonds. Most of the time the reverse is true as investors need more compensation for taking the risk of lending far into the future. The inversions are becoming quite extreme now, reaching levels rarely seen outside periods of impending recessions.

Investors are now scrambling to raise their estimates of where interest rates will eventually peak higher and higher. We think they are doing this at a time when significant disinflation is already in the system and that this will manifest itself in headline numbers before the end of the year.

We therefore see even more compelling opportunity in two-year government bonds in the UK and US.


Further oil production cuts were announced at the Organisation of the Petroleum Exporting Countries (OPEC+) meeting in June which provided support for the oil price. Brent Crude oil rose only by 3.1% in June, although it has been held back somewhat by cheap Russian energy being sold to Asia. Natural gas prices in Europe rose sharply in June but are still around 90% below 2022 highs. Energy declines since peaks last year have been helpful in terms of bringing headline inflation down. However, any further increases would add to issues facing central banks. Global manufacturing weakness, a softer than expected economic recovery in China, and expected slowdowns in western growth are likely to mean energy prices will remain restrained for now. One risk to that theory is a significant ramp up in Chinese economic stimulus.


The US housing market rebounded after a period of weakness that is expected to resume given the amount of long-term fixed rate mortgages set at levels significantly below where mortgage rates now lie. This disincentives households to move as this would require re-mortgaging at higher rates.

In June, UK surveys ranged from very modest declines to equally modest increases although in general they exceeded expectations.

Important Information

All Index data figures are sourced by Morningstar and correct as at 30 June 2023 unless otherwise stated.

The value of investments or any income arising from them may fluctuate and are not guaranteed. Past performance is not necessarily a guide to future performance.