UBS: Global Perspectives - Multi Asset

Markets sustained their upward momentum through July with most asset classes producing positive returns on the basis that policy support is coming. The Bank of Japan (BoJ) announced what turned out to be an underwhelmingly modest monetary stimulus, redirecting the focus of Abenomics back to fiscal and structural action. The European Central Bank (ECB) indicated that they were “ready, willing and able” to act as needed post Brexit, but that existing measures need time to work first. Similarly, the US Federal Reserve (Fed) opted not to raise rates, sounding a relatively upbeat tone, but acknowledged global market uncertainty stemming from Brexit as potentially having repercussions for the US economy.

The strong US jobs data injected some much needed confidence into markets as nonfarm payrolls significantly exceeded expectations, posting the largest gain in eight months. Futures markets are now pricing in a slightly higher probability of the Fed raising interest rates in the next 12 months.

Japanese equities benefitted from expectations of further reform-minded policies from the Prime Minister and looser monetary policy from the BoJ. Meanwhile, robust economic data as well as loose monetary policy supported European market efforts to regain pre-Brexit levels. Emerging markets, US and UK equities also delivered strong positive returns. Most fixed income markets gained over the month, with government bond yields remaining at record lows in spite of increasing levels of risk appetite within markets. Within credit, spreads narrowed in July across the US, Europe and the UK. High yield debt also performed well over the month with the US and Europe marking positive gains. In commodities, oil prices experienced their largest monthly drop in a year.

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