July was a great month for virtually all asset classes (at least those tracked by Deutsche Bank) with the notable exception of what, which tumbled after surging previously.
As DB's Jim Reid writes, there was strong performance for most assets in the bank's sample as various market volatility measures trended lower over the past month to touch new all-time lows. 33 out of 39 assets posted positive total returns in local currency terms while all assets except for one (wheat) saw positive returns in USD terms after a tough month for the Greenback (-2.9%). In summary commodities and equities make up the top of both the local currency and USD performance tables while European assets (equities and government bonds) crowd at the bottom of the LC performance table. However the strong performance of the Euro (and USD weakness more generally) lifted most European assets into more positive territory in USD terms. Thus in USD terms the worst performers were mostly US credit and treasuries, rounded out by two relatively underperforming agricultural commodities in Corn (+0.1%) and Wheat (-7%).
In terms of the key movers on the month, oil was one of the strongest performers as it led all assets in local currency terms (WTI +9%; Brent: +8%). It should be noted that nearly all of the gains came at the tail end of the month following news of Saudi Arabia’s pledge to reduce crude exports in August. Elsewhere the Bovespa (+11%) and FTSE MIB (+8%) matched gains in oil to top the USD table following a rally in the underlying equities (Bovespa LC: +5%; FTSE MIB LC: +5%) and strong performance in their respective currencies (BRL +6%; EUR +3%). Broader EM equities also saw strong performance in general (MSCI EM: +6%). An important dynamic to note is the fact that despite the poor performance of broader European assets in LC terms (and middling performance in USD terms), European banks actually saw strong returns on the month with gains of +3% in LC terms and over +6% in USD terms as Euro area economic momentum continues to hold strong and Eurozone government bond yields have risen following Draghi’s speech at Sintra.
Now taking a look at the other end of the performance table. US Dollar weakness in July in general weighed on non-US equities with the DAX (-2%), Greece Athex (-1%), Nikkei (-0.5%) and STOXX 600 (-0.3%) making up four out of only six assets that saw negative total returns in LC terms. European government bonds (Bunds 0.0%; BTPs +0.6%) also underperformed other assets in LC terms as they remained mostly flat on the month. However as noted above, much of their poor performance in LC terms was mitigated in USD terms as most currencies advanced against the dollar. The main losers on the month in USD terms were US credit and treasuries that broadly saw limited LC returns and were dragged further down the table by USD weakness that propelled other assets. Corn (+0.1%) and wheat (-7%) were the worst performers on the month in USD terms however as weather conditions were reported to boost supply.
Now a quick look at YTD returns.
In USD terms the top of the leaderboard is dominated by European equities with Greek equities (+43%), Spanish equities (+29%) and Italian equities (+28%) making up the top 3.
Broader European equities are up +20% on the year with European banks outperforming with YTD gains of +27%. In comparison the S&P 500 has posted returns of 12% and is actually the second worst performing DM equity market this year with only the Nikkei trailing it by a small margin. EM equities are also broadly delivering strong performance YTD with the MSCI EM index posting gains of +26% in USD terms. Over in bond markets European fixed income has broadly outperformed relative to the US. European government bonds have broadly posted returns of 10-13% in USD terms in comparison to Treasury returns of only 2%, while European credit has posted returns of between 13-19% in comparison to US credit returns ranging between 4-7% YTD. However it should be noted that much of the gains in European assets can be attributed to the strong performance of the Euro which is now up 12% YTD.
Finally over in commodity markets wheat remains the top performer (+16%) despite its poor performance in July, while oil (WTI -7%; Brent -10% YTD) remains the worst performing commodity and at the bottom of YTD performance table in general despite its late rally in the past month.