Market Update June 2021

Global equity markets performed strongly in June as fiscal support from governments and monetary policy from central banks remained accommodative while economies continued to reopen.

The value of the Australian Dollar decreased against major foreign currencies enhancing investment returns when measured in Australian dollar terms for the month of June. Global investment grade credit spreads expanded over the month (i.e. the market’s perceived risk of lending to high quality companies increased).

Australia and the United Kingdom announced an “agreement in principle” for a Free Trade Agreement, with formal documents yet to be negotiated and signed. The trade deal covers a range of objectives including increased two-way investment flows, visa permit alterations, fair intellectual property rights, improved services access and, perhaps the main focus, the elimination of tariffs and quotas of agricultural goods in stages over the next 15 years (with some exceptions such as long-grain rice). Importantly, from a political perspective for the United Kingdom, this is the first trade deal the UK Government has agreed to enter into, post-Brexit, that has not been a “rollover” of a pre-existing trade agreement or similar arrangement from former European Union deals.

The G7 (group of 7 nations[1]) leaders attended the 2021 summit in person; it was hosted by the United Kingdom between 11-13 June, and the Australian Prime Minister Scott Morrison attended as a guest. Topics discussed included the global recovery from the pandemic, promoting free and fair trade, a global minimum tax rate for multinational corporations, and tackling climate change. 

While discussions on the global corporate tax rate did not yield a concrete result, with talks to continue on this issue, the G7 did pledge to share at least 870 million vaccine doses with developing nations over the next year on a needs basis. Regarding climate change, the G7 collectively committed to “ambitious and accelerated efforts to achieve net-zero greenhouse gas emissions as soon as possible and by 2050 at the latest” aiming for a “nature-positive economy”.

Inflation concerns continue to be at the forefront of market participants’ thoughts in June. On 10 June, the United States released inflation numbers for May, and the Consumer Price Index (CPI) rose 5.0% year-on-year, the highest rise in 13 years. When excluding more volatile components of the CPI basket such as food and energy, the Core CPI Index rose 3.8% year-on-year, the highest since 1992 [2]. While a spike in inflation was expected as economies reopen, with supply chains continuing to be disrupted even as consumer demand for specific items such as holidays increases, the debate remains whether inflation will be persistent or transitory as central banks react to their economies heading towards full employment.

COVID-19

 Reported global coronavirus case numbers exceeded 182 million at the end of June 2021, with a total of over 3.9 million fatalities [3]. Reported global daily new cases of infection were relatively steady for the month of June with numbers ranging from 300,000 – 450,000. Brazil, Columbia and Indonesia were the only three of the top 20 countries (by total reported cases of infection) that saw new peaks in daily cases, while Russia, the United Kingdom and South Africa saw a notable spike in cases in June.

The global vaccine rollout continued throughout June with 23.4% of the world’s population having received at least one dose by the end of the month. By 28 June, 3 billion doses had been administered worldwide [4]. The Delta variant (and to a lesser extent the Delta Plus variant), which originated in India with technical name B.1.617.2, is suspected to be more transmissible and is the predominant form of new COVID-19 infections in the United Kingdom and in other countries including Australia. Whilst the Delta variant does not yet pose a threat to the global vaccination program, where prior vaccinations would be rendered useless, there is some evidence to suggest that receiving only one vaccine dose is insufficient to protect against the Delta variant and a second dose is required for enhanced immunity. The Israeli Government, who have had one of the most successful vaccination campaigns to date with over 60% of their population having received at least one vaccine dose, instructed residents to wear facemasks indoors due to an increase in cases linked to the Delta variant.

Australia experienced a number of outbreaks which resulted in lockdowns throughout June. Melbourne entered June in a locked-down state with plans to reopen on 3 June, however, the lockdown was extended a further week and ended on 10 June at midnight. Towards the end of the month, Sydney saw an outbreak of cases and went into a strict 2-week lockdown beginning on Friday 25 June. Cases from Sydney have spread to other parts of Australia including Western Australia, Queensland and the Northern Territory, which introduced shorter lockdowns of their own. The majority of states have imposed border restrictions as a result.

Equities

Major foreign equity markets produced strong positive results throughout June. Developed markets (excluding Australia) returned 2.4% on a currency-hedged basis (and 4.7% in Australian dollar terms). Of the major foreign markets, the best performer was the United Sates market (S&P 500 Index) which returned 2.3% for the month.

The Australian stock market (S&P/ASX 200 Index) was one of the top performing major stock markets and generated a return of 2.3% during June, with 10 out of 11 sectors contributing positive returns. Information Technology was the standout performer returning 13.4%, followed by Communication Services and Consumer Staples returning 5.6% and 5.3% respectively. The sole sector that detracted from the ASX 200 Index was Financials which returned -0.2%.

From a foreign developed market perspective, 7 out of 11 sectors produced positive returns. Information Technology, Energy and Health Care were the highest returning sectors with returns of 7.2%, 4.3% and 3.8% respectively. Materials, Financials and Utilities were the worst performing sectors returning -2.5%, -2.3% and -1.8% respectively.

Bonds

The Australian government bond yield curve flattened significantly throughout June with the two-year yield increasing by 0.008% and the ten-year yield decreasing by 0.181%. The cash rate set by the RBA remained unchanged at 0.1% in June.

All major developed global government bond yield curves flattened throughout June. Over the two-year term, United States and Chinese bonds increased the most by 0.108% and 0.063% respectively. Over the ten-year term, the United States government bonds decreased the most by 0.126% and Chinese government bonds were the only major government bonds to increase in yield, increasing by 0.019%. 

Currencies

The Australian Dollar decreased against all major currencies, decreasing by 3.1%, 1.8% and 1.7% against the United States Dollar, Chinese Renminbi and Japanese Yen respectively. The Australian Dollar decreased the least against the European Euro, falling by 0.02%.

The Australian Dollar finished the month at 0.7498 US Dollars, down 2.4 US cents over the month. 

Commodities

WTI oil rose 10.8% and the price of Brent crude oil increased 8.4% over the month due to increased global demand from reopening economies. The S&P GSCI Industrial Metals index decreased 3.5% on average, with iron ore the strongest performer, rising 16.8%. Of the precious metals, the price of gold decreased 7.2% and the price of silver reduced by 6.8% in June. 

Performance of key markets over relevant time periods to 30 June 2021

Asset class Index Month* (% change) FYTD* (% change) 1 year* (% change)
Australian Shares S&P/ASX 200 Acc. Index 2.3% 12.9% 27.8%
International Shares MSCI World Ex Aust Unhedged A$ 4.7% 16.3% 27.5%
International Shares MSCI World Ex Aust Hedged A$ 2.4% 14.2% 35.8%
US Shares S&P 500 Index 2.3% 15.3% 40.8%
UK Shares FTSE 100 Index 0.4% 10.9% 18.0%
Japanese Shares Nikkei 225 Index -0.1% 5.8% 31.3%
Australian Listed Property S&P/ASX 200 A-REIT Index 5.5% 9.9% 33.2%
Australian Fixed Interest Bloomberg AusBond Composite Index 0.7% -1.7% -0.8%
Australian Cash Bloomberg AusBond Bank Bill Index 0.0% 0.0% 0.1%
Currency AUD/USD -3.1% -2.5% 8.6%

*Percentage change in returns are for periods over the month of June (Month), the calendar year 1 January 2021 to 30 June 2021 (CYTD) and for the year 1 July 2020 to 30 June. Past performance is not an indication of future performance.

[1] The seven G7 countries are Canada, France, Germany, Italy, Japan, the UK and the US
[2] US CPI and US Core CPI figures cover the period 1 April 2020 to 31 May 2021
[3] https://www.worldometers.info/coronavirus/
[4] https://ourworldindata.org/covid-vaccinations

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