Global equities have failed to break through the highs they reached around this time last year. With earnings expectations still negative, equities are likely to face continued questions.
The May unemployment report led to projections for Fed rates rises being revised, with payrolls increasing by only 38,000. While Janet Yellen has signalled that they will now need to wait for further data, we continue to believe the market underestimates the Fed’s commitment to further rate rises.
Commodities continue to look relatively attractive compared to equities, with the supply/demand balance showing signs of improvement. We continue to hold an underweight position to sterling. While polls continue to suggest the Remain campaign will be successful, economic data has deteriorated markedly.
Janet Yellen signalled that the Fed would wait before raising US interest rates, with the most recent payroll report showing an increase of only 38,000. While the Fed’s previously hawkish tone had seen bond yields rise at the margin, they had remained well below the level of the December hike. However, with disappointing jobs data, markets have re-priced the likelihood of a rate rise in either June or July.
We believe the recent payroll number is likely to be an anomaly, with signs of stronger employment data elsewhere. While the odds of a Fed rate rise in June or July are now slim, we continue to think the market is underestimating the Fed’s commitment to further tightening.