A glass half-full half year

Halfway through 2023 and, all in all, things have been fair-to-middling for markets. We’ll have a more detailed run-through of asset class performances in next week’s Weekly, but an assessment of the changing economic and markets landscape over the quarter seems appropriate for this week’s edition.

This second quarter ends amid positive sentiment towards global risk assets (UK assets have not fared quite as well), a surprising turnaround given it started with black clouds on the horizon, following March’s US regional bank crisis. March had many investors thinking credit would tighten as banks would surely be scared to run out of money themselves. Looking back now, the evidence seems to be that a shift of client deposits to larger banks, alongside US Federal Reserve (Fed) actions, produced an effective easing. Not only did the Fed push liquidity into the system, but it also reduced risks for investors by expanding its deposit insurance cover terms. Some would say that, implicitly, the Fed told us that its response to possible financial system issues is to be swift and generous. So, if something looks like breaking, the Fed will step in to stop people getting hurt.

Markets don’t listen to Wagner

Despite how much we might personify them, capital markets are not people. They do not care about the things real people care about. When a hotdog-vendor-turned-warlord and his band of mercenaries launches a coup against the world’s most nuclear-equipped government, most people have an opinion. But markets do not bat an eyelid, apparently. After Yevgeny Prigozhin launched (and quickly retracted) his Wagner rebellion the previous weekend, global stocks and bonds did not budge. The biggest geopolitical event since the Ukraine war began was not even a blip for investors.

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