For commodities July was the cruelest month: whether driven by Chinese weakness or just algos frontrunning hedge fund liquidations, July was the worst month for commodities since the great oil crash of late 2014, but nowhere was it worse than oil, which entered into a bear market - its second in under one year - with WTI sliding 21%, its worst month since October 2008, while Brent suffered its biggest monthly decline in 2015. In fact one could be hard pressed to debate who had it worse: Chinese farmers stuck with underwater positions in an insanely volatile market, or commodity bulls.
But it wasn't just commodities vs everything else: as Deutsche Bank observes, July proved to be an eventful month for markets (and volatile for some) as we saw a diverging performance between DM and EM. The carnage in China and commodities was a key highlight in otherwise what was a fairly positive month for DM credit, rates and equities.
Here are the details:
taking a closer look at the specifics moves in commodities WTI (-21%), Brent (-18%), and Copper (-10%) all suffered huge monthly declines in July. For WTI it was the worst month since October 2008 and Brent the biggest monthly decline this year. Demand for commodities is generally closely correlated to EM growth. So with concerns of China and Brazil slowing down, the moves in commodities are perhaps not surprising even though persistent Dollar strength and the potential timing of a Fed liftoff have also likely weighed on the broader appetite for EM assets.
China equities had an extremely volatile month (28% range including the intraday high/lows) as authorities attempted to engineer an orderly deleveraging of its stock market after fairly aggressive selling at the start of the month. They had some success until panic selling returned a few days before the month end to see the Shanghai Composite (-14%) record its worst monthly performance since August 2009. Brazil equities fell 4% on deepened recessionary concerns.
That mostly covers the bad news: on the other side of the performance scale was dominated by European equities as Greek concerns eased. Peripherals markets such as Italy (+4.8%) and Spain (+4.3%) were the main outperformers. The Stoxx600 was also up +4.0%. BTPs and Spanish bonds also gained 3.5% and 2.6% in July with the former also supported by its decision to cancel 3 debt auctions that were scheduled for July and August. On the other side of the pond, the S&P 500 (+2.1%) had its second best monthly performance this year as the Tech sector outperformed on generally favourable results.
It was certainly interesting to see European and US core rates firmer despite the strength in their respective equities market. Perhaps bond investors are still somewhat concerned about the global growth outlook given the pace of deterioration in China. Treasuries and Bunds were up 1% and 1.5% respectively. The rates rally was also helpful for Credit returns especially given the spread weakness in the US. US HY (-1.2%) was the notable underperformer dragged down by the market’s concentration in Oil and mining.
So without further ado, here are the best and worst performing asset classes in July in local currency terms:
And here is the same data for all assets through the end of July also in local currency terms...
... and denominated in Dollars.