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Archinomics Monthly - July 2021

5 months ago



July was a positive month for most developed stock markets, with the US and Europe both hitting new all-time highs on the back of strong corporate earnings. The S&P 500 led the way with a 2.3% gain, while the Euro Stoxx 50 rose 0.6%. The outliers were Spain and the UK, both falling slightly. Emerging markets also suffered in July. The MSCI Emerging Markets index fell 7%, pulled lower by double digit losses for the Chinese stock market as local regulators launched a crackdown on the tech and education sectors. The Japanese stock market also weakened, posting a 2.2% loss as the country entered a state of emergency.


US and European government bond yields fell (and prices rose), as concerns over the spread of the Covid-19 Delta variant bolstered demand for safer assets. Notably, the 10-year US Treasury yield hit 1.19% in July, its lowest reading in five months. In corporate bond markets, investment grade bond prices rose in the US and Europe as new issuance was met with strong demand. High yield bond prices were also higher in both regions, despite downward pressure from concerns over inflation and economic growth. Elsewhere, emerging market bond prices rose over the month.


The US dollar fell across the board in July, after a torrid end to the month wiped out three weeks of steady gains. The currency responded negatively to the latest Federal Reserve meeting, as the central bank gave no insight over the timing of future stimulus tapering. The euro rose against the dollar, but fell against sterling and the Japanese yen. The Japanese yen enjoyed a strong month, rising against the euro, dollar and sterling.


The price of oil fell sharply over the first half of the month, on concerns over the growth outlook and plans to increase supply, but recouped its losses to finish July slightly higher. The price of Brent Crude oil rose 1.6%, to finish at $76.30 per barrel. Gold was stronger over the month, rising 2.5% to $1,814 per ounce. The price of copper was also higher over the month.

Market Volatility

Market volatility

Volatility spiked in the middle of July, with the VIX index of stock market volatility hitting its highest level since February during a particularly rough day for US markets. The so-called ‘fear gauge’ subsequently cooled off, but still finished the month above where it started, at 18.2.

Responsible investing

At a meeting in Naples, G20 government ministers agreed to announce new climate targets (also known as ‘nationally determined contributions’) within three months. However, after pushback from nations including China, Russia and Saudi Arabia, no agreement was reached on phasing out coal or removing subsidies for fossil fuels.


Markets switched their focus from rising inflation to a potential slowdown in growth, resulting from the rapid spread of the Delta variant of Covid-19. Bond yields slid as prices rose, prompting a rally in growth stocks, which extended their recent outperformance versus value sectors.

Outcomes diverged for Q2 GDP, as the US missed consensus forecasts, while the eurozone beat theirs. The IMF (International Monetary Fund) upgraded 2021 global growth forecasts, while highlighting a gap between developed and emerging market prospects based on vaccination rollouts.

Central bank messaging showed early signs of divergence. The European Central Bank issued a dovish message, promising no interest rate hikes until inflation reaches the 2% target, while the US Federal Reserve gave more hawkish hints on tapering its bond purchase programme.


on the

Earnings season for the second quarter is due to continue and could see further ‘beats’ of a record set of forecasts. Bumper dividends and share buybacks are likely to remain a feature of sectors hard hit during last year’s pandemic.

The Jackson Hole Symposium of the world’s central bankers will be closely watched for clues as to the timing of future policy switches. In low summer volumes, markets could be hit by volatility events if the messaging veers off script.

The Delta variant of Covid-19 looks set to spread rapidly, particularly among populations with lower rates of vaccination. Recovery growth forecasts could be shaved to reflect possible further restrictions to activity.

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