This month’s market commentary looks back at June with a view that materials shortages were driving global inflation higher and US data was still strong despite the supply and labour shortages.
Shortages constrain growth…
The US market currently has a number of positive and negative factors to evaluate – a massive stimulus package, going directly to the man in the street, and an aggressive growth target from the Federal Reserve, but also a slowing vaccine roll-out, now struggling to meet its daily targets. Moreover, what has become evident from recent data and comments is that growth is now being stifled by shortages of raw materials, which is largely due to Covid, and will work through, and also labour. One reason for the labour shortage is likely, ironically, to be the stimulus cheques that have meant that many seasonal workers will not need to work for the moment. These constraints are fuelling the rise in inflation, but investors seem willing to look through this short-term effect.
Data points to continued recovery…
Although economic data in the markets of continental Europe did not make further progress in June, the latest numbers, particularly from the PMI surveys, showed confidence and expectations still to be running at very high levels. The vaccination programmes of the EU nations continue, and have accelerated to the point where they are now ahead of the UK. Also the prospect of those EU countries that benefit greatly from tourism, such as Greece and Italy being able to do so once again this summer, has boosted investor confidence.
Mixed on lockdown extension….
UK shares were broadly unchanged in June, with weaker Sterling boosting the FTSE 100 stocks, but some areas of the market were set back by the announcement on 14th June that the anticipated end of lockdown restrictions in the UK would be delayed by another four weeks, with the unlocking now coming no earlier than 19th July. Inflation fears were also foremost in investors’ minds as the May inflation print showed a jump to 2.1%, which, while not unexpected, is above the Bank of England’s 2% target.
Slightly ahead of wider Asia…
In its monthly assessment of the economy, the Japanese government drew attention to the impact of Coronavirus, noting increased weakness in some parts of the economy as people cut back on overall spending. Manufacturing industries, such as car manufacturers are not performing well, but those industries connected to information technology are strong. Overall, it seems likely that the Japanese economy grew by just 0.5% year-on-year in the second quarter, but a preliminary estimate is not due until 16th August.
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Mahfooz (Maz) ShamsuddinDirector & Chief Information Officer