Monthly investment update: July 2021

Global risk assets pushed higher at the start of the month but came under pressure following the release of surprisingly hawkish comments from the Federal Reserve (Fed). A push higher following the initial dip saw global equities end the month slightly higher, while global bonds did not fully recover following the post-Fed sell-off. Listed property moved upward, in line with equity markets.

Financial market indicators

Source: Ashburton Investments

The Johannesburg Stock Exchange (JSE) failed to move higher with global equity markets following the Fed’s comments and remained under pressure into month close.

A move to lockdown level four, and a weaker rand, may have played a part. Local bonds ended the month slightly higher despite these dynamics. The JSE Property Index also managed to close higher for the month.

Economic data overview

In the United States (US) a surprisingly hawkish Fed dominated rhetoric. On a preliminary basis, the IHS Markit US Composite Purchasing Managers’ Index (PMI) fell to 63.9 in June. While this was well below expectations (of 68.7), it still signaled expansion in output across the private sector. Both services activity and manufacturing output grew at softer rates, while goods producers were hampered by significant supply-side delays. Retail Sales increased 28.1% year-on-year in May, below forecasts of 55%, with the large increase due to low base effects from last year. The trade deficit narrowed to $68.9 billion in April, from a record high $75 billion gap in March. This was in line with market expectations. Exports were up 1.1% while imports dropped 1.4%. The unemployment rate dropped to 5.8% in May, the lowest since March 2020 and below market expectations of 5.9%, adding to signs that the job market consolidated its recovery as the economy reopened. Annual inflation soared to 5%, above market forecasts of 4.7%. This was the highest print since August 2008. This came amid a surge in demand as the economy reopened, with commodity prices soaring, while supply constraints were exacerbated by the impact of a very weak base. The economy has shown sustained improvement due to widespread vaccination and unprecedented monetary and fiscal policy actions. The Fed left the target range for its federal funds rate unchanged in June, but policymakers turned a little more hawkish – increasing inflation expectations and signaling two possible rate increases by the end of 2023.

Eurozone data was, on balance, better than expected. The euro area economy shrank 0.3% quarter-on-quarter (1.3% year-on-year) in quarter one of 2021, compared to preliminary estimates of 0.6% quarter-on-quarter (1.8% year-on-year). Still, the bloc entered a double-dip recession as activity and demand were hit by fresh lockdown measures. Preliminary estimates showed the IHS Markit Eurozone Composite PMI rose to 59.2 in June, slightly above market expectations of 58.8, indicating a third successive month of accelerating output growth. Consumer confidence improved to its highest levels since January 2018, as sentiment remains supported by the reopening of the economy. The trade surplus widened to €10.9 billion in April amid a sharp recovery in global demand as imports and exports jumped 37.4% and 43.2% respectively. The number of employed persons in the euro area decreased 0.3% quarter-on-quarter in quarter one of 2021, down from the 0.4% growth in quarter four of 2020. This was below expectations. Headline inflation accelerated to 2% in May, above market forecasts. The European Central Bank (ECB) left monetary policy unchanged during its June meeting, stating that it expects net purchases under the Pandemic Emergency Purchase Programme over the coming quarter to continue at a significantly higher pace.

United Kingdom (UK) data was mixed but continued to point to an expansion in activity. Preliminary reports showed that Britain’s gross domestic product (GDP) increased 27.6% year-on-year in April, in line with expectations. The IHS Markit/CIPS UK Composite PMI flash estimate came in at 61.7 for June, from a forecasted estimate of 62.8, with manufacturing activity expanding in line with expectations, while the expansion in services was slightly softer than expected. The Growth from Knowledge (GfK) Consumer Confidence remained unchanged at -9 in June, compared to the market consensus of -7. Retail sales rose by 24.6% year-on-year in May, missing market expectations of a 29% advance. The trade deficit shrank to £0.9 billion in April, comfortably beating forecasted expectations of £3.2 billion as imports and exports rose 0.4% and 2.5% respectively. The unemployment rate fell to 4.7% in the three months to April, with the number of employed people rising by 113 000. Inflation climbed to 2.1% in May, above market expectations of 1.8%. This was the highest since July 2019. The Bank of England voted to keep its benchmark interest rate on hold at a record low of 0.1% and to leave its bond-buying programme unchanged, as widely expected.

Data from China was mixed but broadly pointed to continued growth. China’s composite PMI for May dropped to 53.8, from the four-month high of 54.7 it had reached in April. Despite this, activity in the services sector continued to expand while manufacturing grew moderately. Retail sales slowed to 12.4% year-on-year in May, missing market consensus of 13.6%. China’s trade surplus was $45.5 billion in May, below the market consensus of $50.5 billion. Exports jumped 27.9% while imports soared at a faster 51.1%. The urban unemployment rate eased to 5% in May, a 0.1% improvement from the previous month. The annual inflation rate jumped to 1.3% in May 2021 from 0.9% in April but was still below expectations of 1.6%.

Japan’s economy remained under pressure in June. The Japanese economy shrank 3.9% year-on-year in the first quarter of 2021, compared with market estimates of a 4.8% drop. The contraction came amid a resurgence of the Coronavirus (COVID-19) cases and slow vaccine rollouts. The Jibun Bank Composite PMI reading was down to 47.8 for June, from 48.8 in May and below expectations of 49. Japan posted a trade deficit of ¥187.1 billion in May from ¥856.7 billion in the same month a year earlier, well below the market consensus of ¥91.2 billion. Exports jumped 49.6% year-on-year while imports rose at a softer 27.9% year-on-year. The unemployment rate rose to 2.8% in April against expectations of a 2.7% rate. Consumer prices declined 0.1% year-on-year in May, marking the eighth consecutive drop, as renewed lockdown restrictions weighed on household spending. The Bank of Japan left its key short-term interest rate unchanged at -0.1% and maintained the target for the 10-year Japanese government bond yield at around zero percent during its June meeting, as widely expected. The central bank reiterated that the economy has picked up as a trend, however, it has remained in a severe situation due to the pandemic.

In South Africa (SA) most data points were strong and exceeded expectations. The economy grew an annualised 4.6% in quarter one of 2021, following a revised 5.8% advance in quarter four of 2020, easily beating market consensus of a 2.5% rise. Eight of the 10 industries measured grew, with mining (18.1%), finance (7.4%) and trade (6.2%) the biggest contributors. Agriculture (-3.2%) and utilities (-2.6%) contracted. The composite leading business cycle indicator rose by 3.7% month-on-month in April – the strongest since last August. The value of building plans passed jumped at a record 346% year-on-year off a very weak base, with sharp increases seen in residential, additions and alterations, and non-residential. The current account surplus widened to R267.3 billion in quarter one of 2021, from R197.8 billion in quarter four of 2020. It was the second largest surplus on record and as a ratio of GDP rose to 5.0% from 3.7% in quarter four of 2020. The FNB/BER Business Confidence Index rose to 50 in quarter two of 2021 from 35 in quarter one of 2021. It was the highest reading since quarter four of 2014, as confidence rebounded sharply in manufacturing, retail trade and the motor trade sectors. The FNB/BER Consumer Confidence Index, however, decreased to -13 in quarter two of 2021 from -9 in quarter one of 2021. This may have been due to soaring food and fuel prices, the onset of a third wave and the feeble recovery in low-skilled employment. Retail trade jumped 95.8% year-on-year in April and mining production jumped 116.5% year-on-year April – mainly due to a very weak base. The unemployment rate rose to 32.6% in quarter one of 2021 from 32.5% quarter four of 2020.

It was the highest jobless rate since comparable data began in 2008. Total employment fell in construction, trade, private households, transportation services and agriculture, while financial services added jobs.

The expanded definition of unemployment, including people who have stopped looking for work, came in at 43.2%, up from 42.6% in the prior period. The annual inflation rate rose to 5.2% in May from 4.4% in April, in line with market expectations, on higher prices for transport and food. Core inflation increased to 3.1%. Producer prices jumped 7.4% year-on-year in May, up from 6.7% in April and slightly above market expectations of 7.3%. The South African Reserve Bank did not have a meeting during the month and the next one is scheduled for 22 July.

Market outlook in a nutshell


  • We remain constructive on emerging markets outside of China amid potential high growth rates in corporate earnings.
  • Global growth is rebounding. A more material recovery is expected this year as precautionary savings unwind, and as economic activity recovers off a low base.
  • We continue to believe that the dollar will depreciate amid its counter-cyclical nature with the reflationary growth cycle, although this may be nearing the peak.
  • The vaccine roll-out is expected to continue boosting broader equity markets.
  • Monetary policy is expected to remain accommodative in 2021. Central banks will likely continue to add significant liquidity and balance sheet support to their economies.
  • Inflation is expected to rebound in 2021 and remain relatively sticky, particularly in the US. However, we continue to believe inflation will likely struggle to remain near target levels on a sustainable basis over a prolonged period of time.
  • Commodities will broadly benefit from a pickup in global demand.
  • Yield curves in many developed economies will likely remain flat or gradually rise, diminishing the capital gain return in bonds as economic growth and inflation accelerate. We do, however, acknowledge that this backdrop may well be nearing a peak.
  • Global equities have more investment merit than global bonds for now.


  • Economic growth is expected to recover in 2021 from a low base. The favourable global macroeconomic backdrop should benefit SA. The roll-out of vaccines will be a key risk factor. Our base case has a third wave of infections, and we expect the vaccination programme to only be completed by the end of 2022.
  • Policymakers and the private sector will continue to muddle through the complexity of implementing meaningful structural reform. Without these reforms overall potential growth will remain low.
  • Fiscal pressures continue to be exacerbated by financial difficulties at State-Owned- Enterprises, particularly Eskom.
  • The terms of trade boost seen to date has improved the fiscal outlook over the short term; however, the longer-term outlook remains challenging.
  • Slightly higher inflation, stronger growth and slightly tighter global conditions should result in two 0.25% repo hikes in 2022, and one in 2023, taking the repo rate to 4.25%.
  • We expect the rand to continue enjoying some temporary relief before depreciating over the medium term, within a wide trading range.
  • Despite an expected near-term improvement in the jobs market as the economy reopens, unemployment is expected to remain high and household income to remain weak.
  • Successful implementation of growth-enhancing economic and fiscal reforms represents an upside risk to our baseline view.