What’s happened in markets?

FTSE All Share 1.56 0.92 2.07 13.40 25.49 2.67 5.83
Euro Stoxx 50 2.08 3.15 5.22 19.92 31.96 9.36 10.42
S&P 500 0.96 2.24 5.97 19.11 34.51 18.02 17.42
Japan Topix 1.49 -1.28 0.23 8.11 27.18 6.10 11.03
MSCI Asia Pac. 1.34 -4.48 -4.11 -0.23 17.33 10.44 11.94
MSCI Emerg. Mkts. 1.18 -3.70 -2.72 1.46 19.31 9.23 10.67
Jo’burg All Shares -0.43 4.37 1.75 17.44 22.33 9.97 8.89
UK Gov’t Bonds -0.36 1.39 3.18 -3.40 -4.30 3.85 1.93
US Gov’t Bonds -0.40 0.35 1.62 -1.65 -3.42 5.08 2.40
Global Corp. Bonds -0.41 0.32 2.13 -0.05 1.53 6.76 4.64
Emerg. Mkt. Local -0.65 -0.12 -0.37 -4.26 2.58 4.14 3.05

Figures in the respective local currencies as at the end of trading on 6/8/2021.

The week of 2 August’s highlight was the much anticipated US unemployment report, which showed the labour market is making more robust steps towards a full recovery and the economy is strengthening. The US added 943,000 jobs in July, the highest number of new jobs in nearly a year, topping the expected figure of 870,000. And the unemployment rate declined faster than forecasted, dropping to 5.4%. On the pandemic front, COVID-19 cases and hospitalisations continue to rise in the US, mainly as a result of the highly transmissible Delta variant. These cases are mostly among the unvaccinated, despite incentive measures to encourage vaccine uptake. However, the Biden administration is also keen to start lifting travel restrictions, to boost the airline and travel industries, and is developing a plan that will require nearly all foreign visitors to be fully vaccinated against COVID-19. Final July purchasing managers’ index readings from around the world saw UK and Eurozone manufacturers report a further month of solid growth, of 59.2 and 60.2 respectively for the composite readings. This is a decline from the recent record highs as more businesses are experiencing growth constraints due to supply shortages of labour and materials.The Bank of England (BoE) kept interest rates at historic lows and its bond-buying programme unchanged. However, it did signal that some modest tightening in the medium term would be necessary to meet its 2% inflation target, leading to Sterling strengthening against the US Dollar, although this would not take place until more of the 1.9 million workers still furloughed were back at work. Its monetary policy committee also increased its forecast for peak inflation and expects it to hit a 10-year high of 4% in the final quarter of 2021, before falling back. This forecast is significantly higher than the bank’s May estimate of peak inflation at 2.5%, which was reached in June and forced the bank to rethink its tactics. In separate news, the UK government is now looking to recommend the Moderna or Pfizer vaccines for those aged 16 and 17.In terms of equities performance over the last 30 days, emerging markets (-3%) continued to trade weaker amid dampened sentiment due to the spread of the Delta variant and low vaccination rates. Meanwhile, developed markets (+2%) have been led by a mix of cyclical and growth stocks, with both value and growth, as well as large and small capitalisation stocks, performing in line with each other (+1%). Financials (+3%) has been the outperforming sector, with information technology (+2%) also doing well as corporates carry on announcing better than expected earnings in Q2. In the fixed income market over the past 30 days, the general risk-off environment with the spread of the Delta variant has meant government bonds, in particular longer-dated paper, have been the relatively better area as yields have slightly fallen. This has translated to better quality investment grade credit outperforming high yield, as spreads have also widened in this area.In commodities, oil prices have fallen recently on worries that the Delta variant would continue to disrupt and slow the global recovery, particularly in the emerging markets.

Latest Consensus Forecast
UK GDP (QoQ) -1.6 4.8
UK PMI 59.2
UK CPI (YoY) 2.5
EU GDP (QoQ) 2.0
EU PMI 60.2
EU CPI (YoY) 2.2
US GDP (QoQ) 6.5
US PMI 64.1
US CPI (YoY) 5.4 5.3

What’s happened in portfolios?

As we detailed in the most recent investment webinar, we’ve taken more control over our regional allocation, particularly within the equity space, which led to more of an overweight into the UK and Europe (ex UK). This has benefited us over the short term as both of these regions have seen strong performance.

In fixed income, rising yields helped our relative performance, particularly given our short duration bias, a lot of which has been driven by the US unemployment report on Friday 6 August coming in a lot better than expected.There was positive news in the property space, with a number of net asset value (NAV) announcements due to the Q2 earnings season coming through. Our two healthcare funds, Impact and Target, both announced a high uplift in their valuations as they reported solid rental collection across the period. A number of revenues within property are inflation protected so, given we are seeing slightly higher inflation numbers, we are able to benefit from that.Over in the renewables sector, both the John Laing Environmental Assets Group and Greencoat UK Wind have announced solid NAV increases, which are partly driven by the fact we’ve seen higher energy prices over the short term. Meanwhile, we’ve seen a slight reduction in NAV for The Renewable Infrastructure Group, after changes in the UK corporate tax rate were accounted for.

What’s happening this week?

11 Aug • US Consumer Price Index | 12 Aug • UK Gross Domestic Product | 13 Aug • EU Balance of Trade