August Commentary
UK equities rose just slightly in July, but the strength of Sterling against the US Dollar and Euro meant large cap stocks with overseas earnings performed poorly, suppressing the main index. It was a volatile month, and markets sold off in the first part of the month due to the spread of the delta variant spread and the slowing growth outlook. Markets recovered in the second half, buoyed by strong sets of results from the financials, basic materials, and energy sectors. The Office for National Statistics reported the CPI rose by 2.5% in the year to June 2021, once again above Bank of England’s target rate of 2.0%.
The US equity market rebounded from March 2020 low levels and low corporate earnings to stage a massive bull run on strong earnings and a spike in GDP. The economic data coming out of the US is mixed. On the one hand, the jobless numbers were a higher than expected 400,000, and on the other, non-farm payroll numbers were at a ten-month high economy adding 850,000 jobs in June. CPI annual inflation in June was 5.4%; the price rises of used cars, trucks, fuel oil and gasoline the largest contributors but this is seen as transitory by the Fed which is why they kept rates at near zero. Increasing references to slowing down asset purchases is a point of note but for now the stock markets are unphased.
Eurozone equities continued their ascent in July. Markets were led by the strong performance in IT, Materials and Real Estate. The Eurozone maintains economic recovery momentum after posting a quarterly GDP growth of 2.0% in June. Signs of improvement were seen in a variety of economic data putting the region in a sweet spot. Business activity in July recorded a PMI of 60.6, the fastest rate for 21 years, and CPI inflation was higher than expected at 2.2%. The vaccine roll-out in Spain, Italy and Germany gained pace boosting hopes that no further lockdowns may be necessary.
The Japanese stock market fell in July as authorities struggled to manage the contagion of the Covid delta variant. Daily new confirmed Covid cases rose by 500% in July. Lacklustre inflation and the public anxiety surrounding the Tokyo Olympic games leading to a spread of the virus further reduces Japan’s chances of gaining meaningful traction. The au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 53.0 in July from 52.4 in June. Supply chain disruptions continue to impact business activity and Covid emergency curbs adversely affect personal consumption levels.