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Article | 12 July 2021 | Investments
June was the fifth consecutive positive month for global equities, rounding off a strong first half of the year, where the MSCI World index rose 12.2% and touched new all-time highs. US stocks were pushed higher by the prospect of upcoming infrastructure spending, with the S&P 500 and Nasdaq indices rising 2.2% and 5.5% respectively. European shares were more muted but still positive, and the Euro Stoxx 50 gained 0.6%. Elsewhere, emerging market returns were mixed and the MSCI Emerging markets index fell 0.1%. Notably the Chinese onshore market lost 2% over the month.
June was a positive month for government bond prices. US 10-year Treasury prices took a downturn (and yields rose) after Federal Reserve governors hinted at an interest rate rise in 2023, but recovered their losses and posted their best week for a year to finish June slightly higher. European government bonds also responded positively as the European Central Bank maintained its bond-buying programme. In corporate bond markets, both investment grade and high yield bonds were higher in the US and Europe.
The US dollar was the standout performer in June. The US Dollar Index, which tracks the currency’s performance versus a basket of its peers, rose by nearly 3% over the month, as investors digested the possibility of interest rate hikes by the US Federal Reserve. Conversely, the euro had a poor month, falling against the dollar, sterling and the Japanese yen. Sterling was weaker against the dollar and the yen, but rose slightly versus the euro. And the yen rose against the euro and pound, but fell against the dollar.
The price of oil continued its upward trajectory in June, boosted in part by US infrastructure plans. Brent Crude rallied 8.4% to finish at $75 per barrel, after touching a near three-year high during the month. This means that oil delivered an impressive 45% return in the first half of 2021. It was a bad month for gold, and the price of the precious metal fell 7.2% to $1,770 per ounce.
Volatility continued to subside in June, despite ongoing inflation concerns and many regions reporting rising cases of the highly infectious Delta variant of Covid-19. The VIX index of stock market volatility hit a pandemic-era low of 15.65 during the month, before finishing at 15.8.
A global minimum corporate tax rate was agreed by the G7 group of nations. The deal will see international companies pay tax in the countries that they operate in, potentially bringing an end to offshore tax havens. Elsewhere, a group of 17 insurance companies has pledged to increase support for projects that support the transition to a low-carbon economy. The Sustainable Market Initiative Insurance Taskforce will also improve coverage for serious risks, such as the extreme weather events caused by global warming.
The US Federal Reserve (Fed) signalled a lift off on interest rate rises as early as 2023. While acknowledging risks to the outlook, the Fed raised growth and inflation forecasts for this year, pointing to a ‘very strong economy, pretty soon’.
The oil price continued its recent climb, pulling headline inflation upwards in its wake. Rising demand, as economies recover, is meeting supply constrained by OPEC production cuts and reduced investment, leading to supply shortfall forecasts.
President Biden gained bipartisan support for the first phase of his infrastructure bill, worth $1 trillion. The package will focus on traditional elements, such as roads and bridges, and could add as much as 1 percentage point to GDP growth.
The great inflation debate looks set to rage on. Expert opinion remains divided as to whether the spike experienced in some major economies is transitory, or the beginning of a sustained and potentially damaging bout of rising prices.
The US will kick off the Q2 reporting season, with high expectations of a strong recovery, following the pandemic-hit earnings of last year. As economies unlock and conditions normalise, companies are more ready to give meaningful guidance as to trading conditions.
The race to vaccinate against Covid-19 is set to continue. Meanwhile the spread of the highly contagious Delta variant will be closely monitored by economies attempting to reopen and resume summer’s traditional sporting and travel plans.