June 2009
A slew of positive economic data has encouraged bulls into the open to declare the beginning
of the end of the global recession and equity markets have responded positively. The FTSE
All-Share Index built on April’s robust performance to post a total return of 4.2% with large cap
companies outperforming their smaller peers.
The positive economic news included a lower than expected rise in the unemployment
claimant count, April retail sales increasing by 0.9% and the PMI rising from 39.1 to 42.9 which
whilst still indicating contraction, shows a slowing rate. Commodities also responded to the
positive news with oil rising above $60 a barrel in May and base metals rose similarly. These
rises come too soon to have any impact on inflation which is still falling, albeit at 2.3%, CPI is
still ahead of the Bank of England’s target. RPI on the other hand pointed to -1.2%, the lowest
level since the measure was first collected in 1948.
However, there is still good reason for caution. The Bank of England’s inflation report read
cautiously and the MPC spend more time debating whether to increase quantitative easing by
£50bn or £75bn rather than whether to increase it at all. In the end they plumped for £50bn
which extends the programme at the same rate as they have already been going. S&P put
the UK public finances on negative watch which, whilst not a downgrade, suggests that the
possibility is ever more distinct. Globally, the car industry remains in trouble with Chrysler filing
for Chapter 11 bankruptcy and GM’s future looking equally bleak. Likewise, Japan is suffering as
demand for exports declines. Their GDP fell by 4% in Q109.
With commodities performing strongly it is no surprise that Mining and Industrial Metals were
top performers in the FTSE, alongside Financials who also benefited from better economic
expectations. Capital was reallocated from Telecoms, which are traditionally perceived as
defensive and also Retailers who had held up well in the past few months.
With the uncertainty surrounding the economy and stock market and the managers’ belief that
the portfolio is well positioned, it was a quiet month for trading. We took some profits from
Marks & Spencer, recycling the capital into Vodafone and we also initiated a position in Weir,
taking profits from AMEC to fund this.