Q2 review – winners and losers

Markets experienced a tumultuous final week in quarter two as investors reacted to Britain’s decision to leave the EU and subsequent political chaos.

Oil, gold and silver were the big winners, while the pound lost ground. Remarkably, the FTSE 100 ended the quarter at its best level since August 2015.

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Oil

 

Crude retreated a little but still managed to notch up one of its best three-month runs in seven years. For the quarter, both Nymex crude and Brent rallied around 25%.

A series of production outages around the globe and slowing US output helped to lift oil prices as they tread water just below $50. Traders also reacted to the weekly report from the Energy Information Administration, which showed US inventories declined by more than 4 million barrels last week.

US production recorded its 22nd weekly fall in 23, with output sliding by 55,000 barrels a day to 8.6 million b/d. This is around one million barrels short of last year’s 40-year peak in production.

Gold

The other big riser was gold, as the Brexit vote pushed up demand for safe haven assets. After recording its best quarter in 30 years in Q1, the yellow metal found more upside in Q2 and is now trading up around 25% this year, holding firmly above the $1,300 handle.

Silver

 

There was also strong support for silver in Q2. The metal pushed well clear of the $19 handle after climbing more than 8% this week to reach its highest price since September 2014. Both gold and silver seem to be benefitting from bets that central banks will be in no mood to tighten monetary policy in the wake of the Brexit vote. The odds on the Fed raising rates this year have lengthened considerably since the referendum, with fed funds futures trading suggesting barely a one in ten chance of higher rates by year end.

Pound

 

Sterling was the big loser from the Brexit vote and ended the quarter trading near $1.33, down around 10 cents for the three-month period having hit its weakest level in 31 years following the Brexit vote. The pound also dropped sharply versus the euro, with EURGBP ending the quarter at its highest since November 2013. The pound fell to its weakest against the Japanese yen since the end of 2012.

Yen

 

Yen strength was assured by the post-Brexit flight to safety. USDJPY is trading between 102-103, with the yen up over 9% in the second quarter and rising 17% year-to-date versus the greenback.

Dollar

 

Despite its losses against the yen, the US dollar was among the biggest risers over the April-June quarter. The buck posted a 4% loss in Q1 but cut this in half by the end of H1. Meanwhile US Treasury yields slid to record lows as government paper around the world slumped.

FTSE

 

Remarkably the FTSE 100 closed out the quarter at its strongest level since August 2015. The blue chip index dropped sharply after the Brexit vote but rallied strongly over the final 3 days of the quarter to trade just shy of the 6500 level. The index was spurred on by a combination of defensive stocks and miners who are enjoying the effects of a weak pound. Fresnillo and Randgold were among the strongest gainers. UK banks lost across the board although HSBC remained solid and posted a quarterly gain in its share price. The FTSE 250 was lower as the more UK-exposed index suffered post-Brexit.

Dow

 

Both the Dow Jones industrial average and the wider S&P 500 posted their third straight quarterly gain. But traders were warned that some of the gains were down to quarter-end and month-end flows.