Global equity markets rallied strongly in June, with a positive return of 5% for the month (MSCI World Index in USD), and a gain for the first half of the year of 14%. Reginal differences continued to be strongly pronounced. Labor markets, especially the ones in US and Europe, are strong, with low rates of unemployment and plenty of job vacancies. This is one of the factors that continues to support the inflation, which has remained stubbornly high across the globe, despite recent slowing due to lower food and energy prices and prospects of economic recession. Investors showed strong appetite for risk in June, particularly in the United States, as more volatile and higher beta stocks outperformed. Every sector finished in positive territory for the month, led by consumer discretionary and industrials, while utility and healthcare stocks lagged. Major central banks raised interest rates during the month, although the US Federal Reserve (Fed) chose to stay on pause. With the return of the preference for risk, government bond yields generally rose (meaning their prices fell). Within fixed income, the best performing assets so far this year have been high yield credit and Italian government bonds, both returning about 5% for the first six months.
   Comparing to the same time last year, when global equities were down 20% and bonds –10%, the first half of 2023 was definitely better for the balanced portfolios. One of the best performing assets were developed market equities, which have delivered 15% year to date. Within equity markets, the big growth tech stocks, which fell sharply last year, bounced back strongly through the first half of this year boosted by enthusiasm over AI (artificial intelligence). On the other hand, commodities stocks, which were last year’s stellar performers, this year retreated considerably from their highs. This means that last year’s worst performing asset group (growth stocks) has been this year’s best performing one,and last year’s best performing asset group, (commodities), has been this year’s worst performing one. This swift turnaround in market sentiment demonstrates the importance of good diversification within portfolios.
   With S&P500 up 16% for the year to date, US stocks have been the second best performing market in local currency (the first one was Japan, which is going through a 33-year market peak). All three major US stock indices (S&P500, Dow Jones, NASDAQ) closed with gains for the month, the quarter and the mid-year, with the broad S&P500 hitting a 14-month high. In the six months since the start of the year, the NASDAQ is up 31.7%, its best first half-year in 40 years, while the industrial Dow Jones was up a modest 3.8%. Stock sectors performance was very mixed. Driven by the hype around artificial intelligence, the information technology sector has contributed more than two-thirds of the S&P500's total return since the start of the year. In a historic event, Apple reached a market capitalization of USD 3 trillion, becoming the first for a publicly traded company. The Wall Street Journal reported that Apple's valuation exceeded that of 5 of the 11 S&P500 sectors in their entirety (materials, real estate, utilities, energy and consumer staples).
    US inflation fell sharply (from a peak of 9%) down to 4% in June, largely due to favourable effects from dropping oil prices. Core inflation remained stickier as the economy more broadly remains in good health - the US unemployment rate increased slightly to 3.7% but the labour market remains historically strong. A revision to GDP growth in Q1 showed expansion of 2% annualized rate; substantially more than the previous estimate of 1.3%. The Fed did not raise rates in June, taking a pause after 10 consecutive hikes. The market expectations currently indicate two further rate rises in the remainder of 2023. On the fixed income side, US investment grade credit posted negative total returns, but outperformed Treasuries over the last quarter, while the high yield debt posted positive returns. The US 10-year Treasury yield climbed back to 3.81% (at the beginning of April it was 3,3%), while the 2-year went up to 4.87%, keeping further the inversion of the yield curve (usually considered a predictor of recession).
   European equity markets also rallied as inflation continued to subside and the job market remained strong, with historicly low levels of unemployment across the continent. European stocks remain up a respectable 14% for the first six months of 2023, despite the high inflation and weaker consumer spending in Europe. The rally was led by the financials and IT sectors, while energy and communication services underperformed. Among financials, banks outperformed as their near-term earnings are expected to be strong. The European Central Bank (ECB) raised interest rates twice in the second quarter, and signaled that they still have further to go. Headline inflation declined to 5.5% in June, but the core inflation (which excludes energy, food, alcohol and tobacco prices) continued to climbin June to 5.4%. The Eurozone did experience a mild recession over the winter, with GDP declines of -0.1% in both Q4 2022 and Q1 2023. Forward-looking data also points to a slowing momentum on the old continent - business surveys showed a particularly gloomy picture for the manufacturing sector, while the services are actually holding up or even expanding for now. 
   Germany’s 10-year yield increased a little to 2.39%. Euro high yield debt outperformed investment grade bonds over the last quarter. The surprisingly high inflaction in the UK forced BoE to act aggressively and to raise interest rates by a larger than expected 50 bp in June. The UK 10-year yield jumped to 4.39% and the 2-year registered an even bigger jump to 5.26% and increased the yield curve inversion. UK government bonds are down 4% year to date on aggregate.
   In a month of strong gains on the international markets, the Bulgarian stock market posted a more moderate performance. The two main stock indices - the flagship SOFIX and the broad BGBX40 - ended the month mixed: SOFIX up 0.5% and BG40 down 1%. The past month was significant for the Bulgarian capital market because it marked the first placement of bonds on the Beam market of the BSE - the financial house LOGOS-TM raised nearly BGN 5 million in an oversubscribed issue. This was the second successful IPO on the domestic market so far this year, when a week earlier the non-banking credit institution Ipotech Sofcom AD raised over BGN 2.4 million. Thus, among Bulgarian companies, the best performer was the industrial holding Stara Planina Hold AD, whose price rose by more than 13% for the month, and the worst - the transport company Bulgarian River Shipping AD, whose share price fell by 19%.