Economic Review

20 Aug

Economic Review

Global Equity Markets 
Global shares continued to gain in June, capping off an extraordinary recovery over the 2020-21 financial year. Robust expectations for corporate earnings and continued progress with vaccinations were the key positives for global shares in June.

Wall Street made new record highs given rapid vaccinations, strong economic activity data and exuberant expectations for US corporate profit results. For the June quarter, analyst estimates suggest an astonishing 62% annual increase in US corporate profits. However, inflation concerns are evident given the surge in commodity prices and significant supply disruptions for key materials such as computer chips. US consumer price inflation was running at 5% in May which is the highest inflation in the past thirteen years. The Federal Reserve has also tempered their guidance on monetary policy, bringing forward their projections for raising the US cash interest rate from 2024 to 2023. This suggests that the current tailwinds of strong corporate profit growth and low interest rate settings for US shares should moderate over coming years.

European shares made solid gains in June. Progress with vaccinations and the gradual relaxation of lockdown restrictions proved positive for European share prices. European business surveys are also delivering encouraging results while the European Central Bank’s guidance of low interest rates was also supportive for European shares.

Asian share markets provided mixed results. The Chinese market was down slightly as China’s economic activity moderated and higher commodity prices squeezed profit margins. Japan’s market was near flat as the government ended the state of emergency that has been curtailing social activity in key cities such as Tokyo.

Table 1: Global share market performance – June 2021
US S&P 500 2.3%
US Dow Jones 0.0%
Euro Stoxx 50 0.6%
German DAX 0.7%
UK FTSE 100 0.4%
Japan Nikkei 225 -0.1%
China Shanghai Composite -0.7%
Source: Factset, financial data and analytics, June 2021

Australian share market review
Australian shares delivered strong returns in June. The information technology sector made robust gains reversing its slump in May. Communications, consumer staples and consumer discretionary sectors also made strong gains with optimism on the Australian economic recovery. The only negative sector performance came from financials but this follows the sector’s strong 20% gain over the past six months.

The Australian Dollar (AUD) fell by 3.0% against the US Dollar (USD) during June, to finish the month at USD0.7500.

Table 2: Australian share market performance – July 2021
S&P/ASX 200 Accumulation Index 1.1%
S&P/ASX 200 Industrials Total Return Index -0.3%
S&P/ASX 200 Resources Total Return Index 6.6%
S&P/ASX Small Ordinaries Total Return Index 0.7%
S&P/ASX 200 A-REIT Total Return Index 0.3%
Source: Factset, financial data and analytics, July 2021

Large Caps (S&P/ASX100)
Sydney Airport was the strongest performer (+34.9%) in July after receiving a takeover offer at the start of the month. Also strong was Lynas Rare Earths (+28.7%) and Spark Infrastructure (+23.8%). The weakest performances were from Crown Resorts (-27.7%), Afterpay (-18.2%) and AGL Energy (-11.8%).

Listed property
The S&P/ASX 200 AREIT Total Return Index posted a 0.3% increase in July, below the 1.1% increase in the S&P/ASX 200 Total Return Index. Only Industrial AREITs (+6.8%) posted an increase with other sectors declining – Diversified AREITs (-2.2%), Retail AREITs(-2.8%) and Office sector AREITs (-3.2%).

Written 5 August 2021.

Important Information
The information contained on this web page must be read in conjunction with the Disclaimer for Economic Outlook and Review.