As we move into the second half of the year, we can look back and see that all things considered, it has been a positive half year for capital markets despite the ongoing inflation concerns in the background led by a shortage of workers and the disruption to some supply chains because of the absence of raw materials. Nevertheless, the Central Banks in both the US and the UK are maintaining that there will be a further spike, but it will only be temporary. This takes away the need for the banks to taper their ongoing monetary support or the need to raise interest rates. In the background we have had an enormous amount of stimulus in the US with President Biden introducing a multi trillion US$ stimulus package, while in the UK we have the absolute support to drive any economic recovery. The issuing of vaccinees across developed markets has gone well, although more needs to be done across emerging markets, and we have seen strong growth in many regions as economies recover post lockdown. The prospect for consumers is good as they have excess savings ready to be spent on non-essential purchases and experiences. Developed markets were also supported by decent results from various companies, and we saw a welcome return of dividends from many blue-chip companies, especially in the financial sector.
For global equity markets in particular is has been a good period, with many developed markets having strong returns. In the UK, the standout performer was the FTSE Small Cap index, returning 18% on the back of the strong economic recovery and the UK economy opening back up after lockdown and small businesses get back to work. The larger FTSE 100 and FTSE 2580 indices returned 8.9% and 9.2% respectively.
Internationally, the US showed the strongest gains, with the S&P 500 returning 14.4%. However, during the last six months there was much disparity between sectors, as the tech heavy Nasdaq suffered from periods of underperformance, before finishing off the period with a strong rally in the last couple of months to end up 12%. Elsewhere, the Euro Stoxx finished up 13.6%, the FTSE Asia Pacific ex Japan returned 7.7%, MSCI Emerging Markets 6.9%, while the Japanese Nikkei lagged with a return of 4.9%.
In terms of currencies, it was a positive period for UK investors as it saw Sterling rally which has also benefited domestically focussed stocks. Since the turn of the year, Sterling has gained 1% against the US dollar, over 4% against the Euro, and has finished up almost 9% against the Yen.
In fixed income, the short-term inflation concerns spooked bond markets and saw bond yields move higher in the first quarter of the year. The US 10-year treasury started the year at 0.92% before rising to above 1.7% at the end of March, before easing and ending the half year at 1.43%. Similarly, the UK 10-year Gilt moved from record lows of 0.2% at the start of the year to end at 0.71%.
In commodity markets, the macro environment of rising inflation and strong global growth, as well as the shortage in supply, meant it was a good period for many commodity prices and mining companies. The Brent Crude Oil price rose by over 40% to end at $73.50/barrel, while the cooper price also rose by over 20%. It was a mixed period for the gold price, which ended the half year down at $1773/oz.