Selected Market Indicators for Periods Ended 31 July 2021

The global economic recovery remained strong in July as the Coronavirus vaccination roll-out continued. This was somewhat tempered by the spread of the Delta variant of the virus, which has created a degree of uncertainty amongst the global population. This caused some global investment analysts to lower economic growth projections.

Australia, a nation which was considered a global leader in the fight against the Coronavirus, has been battling with the more contagious Delta variant, forcing two largest states, Victoria and New South Wales into lockdowns. It has been particularly difficult for New South Wales as they entered into another lockdown with no end in sight.

Despite this, the ASX 200 (Australian Index) continued its strong performance returning 1.1% for the month. This was supported by continued strong earnings growth of companies such as BHP Group and Rio Tinto, which benefitted from higher commodities prices as the global reopening increased demand for raw materials.

Global stocks also pushed higher in July, supported by increased consumer spending and ongoing monetary and government support, with the MSCI World Index returning 1.9%.

The NZX 50 (New Zealand Index) stayed steady for most of July, but ultimately ended the month down 0.5% as concerns over the Delta variant outweighed positive growth outlooks for companies such as Auckland Airport (AIA) and Summerset.

Bonds had a particularly strong month, as the market lowered its projections for economic growth, being a positive driver for bonds.

Significant developments for July included:

• China’s $1 Trillion Crackdown: From Music and the Financial sector, to Ride Sharing and Tutoring, the Chinese government has put the brakes on growing investor fortunes, as it implements sweeping policies prioritising social stability and national security. Ride sharing app, Didi, was forced to take its app off the app store one day after listing on the stock exchange, while Gautu Techedu lost 98% of its value after the government banned companies from profiting from the tutoring of core subjects.
• Will the Reserve Bank of New Zealand be the first to raise interest rates? With the New Zealand economy being in a relatively strong position at present, an increase in the Official Cash Rate (Interest Rate) would put New Zealand first amongst its peers in tightening monetary policy. At the end of July, three-month Bank Bills were pricing in at least a 0.25% increase at the mid-August meeting.
• The U.S. Federal Reserve (Fed) continues its unwavering support for the US economy, noting that it will maintain interest rates at their current record low level until the economy has reached maximum employment and inflation has reached (and is on track to moderately exceed) 2%. The Fed did highlight that progress had been made towards these goals and that it would start considering reducing its support for the economy over coming months.

Trans-Tasman Equities

Trans-Tasman equities had a mixed month, with Australian equities up and New Zealand equities down. The resource heavy, cyclical nature of the Australian equity market has benefitted from the recent global reopening theme. Conversely, the interest rate sensitive nature of the New Zealand equity market has seen the NZX 50 come under pressure as the market begins to price in higher interest rates.

Global Equities

Global Equities had another positive month, with the MSCI World up 1.7% in local currency terms. This was supported by strong global growth, in particular strong US consumption that saw US headline inflation hit an unexpected 5.4% year over year. The NASDAQ and SP500 both touched all-time highs in July, backed by strong earnings growth and continued fiscal and monetary support.

Property and Infrastructure

Global Real Estate had another positive month up 3.8% (hedged) during July. Record low interest rates, elevated consumer savings and a general lack of housing supply has driven unprecedented price appreciation in real estate markets across much of the developed world over the past year. Furthermore, Joe Biden’s $1T infrastructure bill continues to make its way through congress, driving optimism in the sector as Global Core Infrastructure index rose 1.6% (hedged) over the month.

NZ Bonds and Cash

Speculation in the short term bill market that the RBNZ would raise the OCR at its August meeting was not enough to stop longer dated bond yields from falling over the month, driven by broader macro themes such as uncertainty regarding the Delta variant and the transitory nature of inflation. The NZ 10-year Government Bond Yield ended July at 1.532%, down from 1.777% at the start of the month.

Global Bonds

Global Bonds rallied in July with the Bloomberg Barclays Global Aggregate Index up 1.3% (Hedged), its best month since March 2020 driven by falling yields as the market digested the potential negative economic outcome of the contagious Delta variant alongside continued quantitative easing programmes from central banks. The U.S. 10-year Government Bond Yield ended July at 1.228%, down from 1.455% at the start of the month. The FTSE World Government Bond (Hedged) Index was up 1.5% for the Month.

Currency

The NZD had a choppy month but ultimately ended lower against many currency pairs as the market digested the prospect of an increase in the OCR as early as August. However, the NZD appreciated against the AUD driven by a relatively better Coronavirus situation and divergences in monetary policy guidance.