June Monthly Commentary

Global markets are significantly impacted by a broadening of the European sovereign debt crisis and the US debt ceiling impasse. As Italian and Spanish spreads widened, equity markets reflected these concerns as well. Global stocks and currencies are very volatile while gold prices climbed to a new record high, on fears the debt problems in Europe and the United States may spiral into a global crisis.

Stress tests for Eurozone banks released on last fortnight failed to stem the anxiety about a potential Greek sovereign debt default and its contagion effect. In the EBA stress tests, eight banks failed to meet the 5% Core Tier 1 ratio threshold. In the US, as the clock ticks towards the August 2, 2011 deadline for an increase in the statutory $14.3 trillion borrowing limit, investors are nervous about the stalemate in Washington. The lack of progress in negotiating a US fiscal package has already led two ratings agencies to warn of a credit rating downgrade in the event of a US default. However hope remains that the US may avert a default on the optimism that the Congress could reach a debt agreement before the deadline. However US's AAA rating is under a serious threat.

Economic data provide mixed patch for the global economic recovery. June employment data was very bad and way below the consensus however housing markets are seeing some life back. However we remain optimistic that the current soft patch will prove largely temporary and that the world’s largest economy will regain traction in the second half of 2011. Earnings of S&P 500 companies are coming in a very good shape and around 75% of the result so far has beaten the consensus earnings estimate.