Selected Market Indicators for Periods Ended 31 August 2021

In August, the global reopening continued, with a number of countries further lifting pandemic restrictions. This is despite the Delta variant continuing to spread and daily cases picking up across the globe.

While much of the developed world is already at or just past the highest level of economic growth, data showed that the global economy remains strong. Confidence in the economy held by purchasers in various industries remained at high levels (as measured by the flash purchasing managers’ indices), although falling slightly during the month.

Global equities continued their recent surge in August. The MSCI All Country World Index returned 2.6% (in local currency) for the month and 19.2% year-to-date. The index dipped mid-month by almost 2% after poor US retail figures amid the Delta surge worried investors that another virus related slowdown may be ahead. However, markets recovered towards the end of the month, as earnings remained strong and highly vaccinated economies such as the UK show that it is possible to live with the virus.

The NZX 50 returned 5.0% this month, a positive result in the face of the latest COVID-19 outbreak and subsequent level 4 restrictions. The Reserve Bank of New Zealand was widely expected to lift the OCR in August, until the COVID-19 outbreak forced a pause which sent investors back into NZ shares. NZ companies that posted strong company earnings in August included Mainfreight, EBOS and Summerset, which all delivered growth of around 15-17%. Australian results were more mixed, notably the preservation of cash and reduced guidance commentary due to COVID.

Due to unprecedented fiscal and monetary measures introduced to tackle the economic impacts of the coronavirus pandemic, housing markets all around the world have been booming as demand has surged. The US housing market remained strong with sales of previously owned homes rising at a faster pace in July, compared to previous months.

NZ and Global Bonds posted modest losses for the month driven by broader macro themes such as uncertainty regarding the Delta variant and the nature of inflation pressures. The NZ 10-year Government Bond Yield ended August at 1.72%, up from 1.52% at the start of the month.

Significant developments for August included:

• The US Federal Reserve (Fed) stated its contentment with the progress made on inflation, which it still anticipates will be transitory. The Fed expects the labour market to reach employment levels sufficient to slow down its bond-buying programme (which provides support to the economy) shortly, however, stated that the reduction in asset purchases “will not be intended to carry a direct signal of timing of interest rate lift off”.
• The spread of the Delta variant has caused cases in Europe to rise rapidly, denting consumer confidence, which fell in August. That said, Europe has now vaccinated over 70% of the population and the UK finally lifted the last domestic Covid-19 restrictions in August.
• News of Japan Prime Minister Yoshihide Suga’s resignation contributed to a strong rally in Japanese equities, removing some political uncertainty and raising expectations of increased economic stimulus. Gains were also supported by Japan’s accelerating vaccination drive.
• Emerging market equity declines were largely driven by events in China. EM equities initially declined -4.5% as China imposed a heavy regulatory hand through August, impacting a wide range of industries and sectors (such as technology and education) before rebounding towards the month end. China has also had to grapple with the arrival of the Delta variant.
• There was more evidence that the global surge in the Delta variant has begun to impact economic growth. This was highlighted by disappointing retail sales and falling business confidence in the US. In addition, economic data (such as purchasing manager indices, retail sales and industrial production) came in below expectations in China. While highly vaccinated countries such as the US and UK remain open, countries in Asia Pacific, where vaccination rates are lower, continued with their restrictive ‘zero COVID’ policies.