The UK was the main culprit for the biggest decline in the S&P Europe 350 since the UK voted to leave the EU, according to analysis carried out by Tim Edwards (pictured), senior director, index investment strategy at S&P Dow Jones Indices.
Separately, the S&P Italy Sovereign Bond Index was the best performing bond index in the attached S&P Dow Jones Indices Europe Dashboard for June.
Edwards says : “In what proved to be a challenging month across the board for European markets, the S&P Europe 350 posted its biggest monthly decline since the U.K. voted to leave the European Union. The broad benchmark closed with a 2.48% loss this month, although it remained up by 0.84% over the quarter.
“Uncertainty reigned in the UK’s currency and equity markets as June’s General Election resulted in no clear majority for any party – a result that traders and investors judged might leave the pound sterling in a weak and wobbly position. UK equities compose roughly a quarter of the S&P Europe 350; they contributed over a third to the benchmark’s losses this month.
“Market participants struggled to fathom the mixed messages coming from the region’s central bankers this month. Both Mark Carney and Mario Draghi appeared to signal a sooner-than-expected tightening in monetary policy, and while both attempted to give greater clarity on their respective positions, there was a sell-off in the bond markets.
“All but one of the S&P Europe 350 sectors fell this month; the exception was Financials, which were lifted by the prospects of greater interest rate margins and news of a rescue package delivered in Italy for two struggling banks. Such news cheered the Italian sovereign bond market; the corresponding index was the best performing and one of only two fixed income indices to rise on this dashboard.
“Quality was the best performing S&P Europe 350 strategy this quarter; it rose 3.40%. Momentum failed to spot the trend; it fell 1.93% over the same period.
“Volatility expectations increased, with the Vstoxx Index climbing from 14.55 to 17.25.”
