Market Review - month ending 31 July 2021

A macroeconomic recap of the month and financial market performance.

Aug 10, 2021

7 minutes

A macroeconomic recap of the month and financial market performance.
"In the complex adaptive system that is the stock market…there will be dominant narratives that almost everyone agrees with and that seem to provide pat explanations for what has happened and predict what’s likely to happen.…we don’t make forecasts and conform portfolios to those forecasts."
- Value investor, Bill Miller

Global market performance

July was a fairly strong month for financial markets as c.90% of firms - at the time of writing - reported earnings ahead of analyst expectations, while central bank assurances further helped to counter China’s regulatory clampdown on its tech firms and growing concerns of a highly virulent Delta variant sweeping across regions.

Growth stocks held the upper hand vs value as bond yields tracked lower. Developed market equities (MSCI World Index) ended the month 1.8% higher, while emerging market stocks (MSCI Emerging Markets Index) endured a weak start to the second half of the year, down a weighty 6.7% in light of pronounced weakness in China. Across regions, the US benchmark S&P 500 Index continued its stellar run of record highs, closing 2.3% higher for the month, while in Europe, a dovish European Central Bank (ECB) and upbeat earnings revisions fuelled bullish investor sentiment into the area’s stock market (Euro Stoxx 600 Index, 1.4%). As noted earlier, Asian bourses found the going tough in July as China’s crackdown weighed on risk assets; this saw mainland China’s CSI 300 Index end the month down 7.4%, while the Japanese Topix also struggled, down 1.1% over the same period.

In the bond market, US Treasury yields continued their descent to below 1.2% for the benchmark 10-year note during the month, while their European peers continued to move deeper into negative territory. The Bloomberg Barclays Global Aggregate Bond Index closed 1.3% higher for the month with investors largely pushing out the expected start of the interest rate hiking cycle following somewhat dovish comments from the US Federal Reserve (Fed), notwithstanding higher prints in inflation.

All returns are quoted in US dollars.

United States

The US economy grew at an annualized 6.5% quarter on quarter in Q2 2021, weaker than consensus expectations of 8.5%, but finally back to pre-pandemic levels. Behind the headline number, weakness was seen in residential investments and inventory drawdowns, which offset robust consumption as consumers emerged from lockdowns to resume travel and other previously restricted activities. That said, there is growing concern of the rapidly spreading Delta variant, prolonged supply-chain disruptions, a cooling housing market and labour shortages, which economists see weighing on an otherwise robust recovery for the remainder of this year. Inflation data was another upside surprise in June, with the headline CPI print coming in at 5.4%, showing somewhat broad-based price pressures beginning to emerge. In the labour market, 850,000 jobs were added in June, above consensus forecasts of 700,000 and the strongest growth in employment in 10 months. At its two-day meeting on 28 July, the Federal Open Market Committee announced that it had made “progress” to achieving its mandate of full employment and 2% average inflation, but that this did not warrant an immediate change to its policy stance. The Federal funds target rate range was held steady at 0.00-0.25%, while the pace of its asset-buying programme was left at a minimum of US$120 billion per month.

Euro area

Preliminary data released on 30 July showed the bloc’s economy advanced by 2% quarter on quarter in Q2, ahead of consensus expectations of 1.5% and signalling a rebound from the two preceding quarters of COVID-induced contraction. Business and consumer confidence bounced back strongly as lockdown restrictions were eased, alongside the acceleration in vaccinations and government support, and retails sales also returned to pre-pandemic levels. The manufacturing purchasing managers’ index (PMI) came in at 62.8 in July, a marginal decline from 63.4 in June (readings above 50 indicate an expansion in output). In the labour market, the unemployment rate in June declined to 7.7% amid re-openings, marking the lowest rate since May 2020. However, the spreading Delta variant is a potential spanner in the works for the area’s economic recovery in the coming months, while supply-side bottlenecks and the risk of a premature termination of fiscal support present further downside risks to the economic outlook. ECB President Christine Lagarde noted risks to the economic outlook as “broadly balanced”. The bank held key interest rates steady at -0.50%, with no changes to the asset-purchasing programme and the higher pace of purchases under the pandemic emergency purchase programme (PEPP). The ECB’s revised forward guidance on rates reinforced the bank’s dovish stance that it will maintain ultra-loose policy and record-low rates for as long as is necessary to achieve its price-stability mandate.

United Kingdom

The UK economy tracked much softer month on month in May, with a 0.8% expansion that was well below consensus forecasts of 1.5%. The print also came in below the downwardly revised April figure of 2.0%. The reading was rather underwhelming considering the robust performance in the preceding month, as well as the easing of a host of restrictions brought on by the pandemic. The manufacturing PMI fell from 63.9 in June to 60.4 in July, which indicates factory floor activity remains robust, although supply-side bottlenecks and labour supply shortages continue to weigh on activity while fuelling a record acceleration in input costs. The headline CPI print for June came in further above the Bank of England’s (BoE) 2% target at 2.5% in June, from 2.1% in May, and ahead of the consensus 2.2%. The BoE’s Monetary Policy Committee’s (MPC) scheduled policy announcements on the 5 August will be accompanied by the Monetary Policy Report (MPR), which should provide more detail on the members’ growing concerns for the trajectory of prices and the economic outlook. Rates are widely expected to remain unchanged, while the paring back of the quantitative easing programme will be a subject of more intense debate given somewhat hawkish comments by two members of the MPC in recent weeks.


Incoming data continued to point to a more balanced and stable recovery of the Chinese economy amid escalating risks to the growth outlook. The official manufacturing PMI eased to 50.4 in July, from 50.9 in June, below consensus estimates of 51.0. Growth has slowed significantly since the record 18.3% year-onyear expansion in Q1 2021. The slowdown comes as COVID outbreaks in major economic hubs have added pressure on supply bottlenecks and the cost of raw materials. Retail sales and industrial output expanded at a slower pace in June, while the ever-important housing market also appeared to be showing signs of easing. Investors’ eyes were peeled for the Communist Party’s Politburo meeting in July, which was chaired by President Xi Jingping, and signalled a continuation of fiscal support for the world’s second largest economy, alongside monetary accommodation to ensure ample liquidity. There was an emphasis on fiscal spending, which had slowed down in the first half of the year, with Beijing now pushing for more infrastructure expenditure via the issuance of local government special bonds. Elsewhere, the People’s Bank of China (PBoC) MPC meeting reiterated that the recent reduction in reserves banks must hold was not a change in its policy stance, which would remain broadly stable for the second half of the year to support “high-quality development”.

South Africa

Civil unrest erupted in South Africa as supporters of former president Jacob Zuma ignited violent food riots which later evolved into arson of key infrastructure – what President Ramaphosa later called an “attempted insurrection”. The deployment of the army in coordination with the police service ultimately managed to quell the unrest, although the damage had already been done and South Africa’s myriad of extremely flammable realities were once again laid bare. The cost of the damage is still being quantified, but the disruptions to supply chains, business operations, vaccination rollouts, the risk of job losses and danger of food shortages will weigh on Q3 growth. Encouragingly, South Africa moved to adjusted alert level 3 restrictions as COVID cases were assessed to have “passed the peak of the third wave”. The re-opening of consumer-facing businesses such as gyms, restaurants and bars, the lifting of the alcohol ban and reintroduction of the US$24 (R350) relief grants should help counter some of the weakness brought about by the unrest.

The ABSA PMI fell sharply from 54.7 in June to below the expansionary 50 level, coming in at 43.5 in July as the civil unrest in Kwa-Zulu Natal and Gauteng, as well as lockdown restrictions, weighed on business activity and sales orders. Headline inflation eased from 5.2% in May to 4.9% year on year in July, slightly above consensus expectations of 4.8%. The South African Reserve Bank (SARB) MPC projected a softer tone on borrowing costs as it unanimously held the main lending rate steady at 3.5% p.a. on the back of potentially peaked inflation in May, weak demand and the recent unrest.

Commodity markets

The Bloomberg Commodities Index ended the month 1.8% higher. The 2021 commodity price boom lost some steam in recent weeks on concerns of imminent monetary policy tightening and the spread of the Delta variant. However, hedge fund bets suggest the run still has some legs to go, while supply tightness in select raw materials has kept prices at pre-pandemic peaks. Brent crude oil prices surged above US$75 per barrel in a fourth consecutive monthly advance, which brought the year-to-date return to +47%. Gold continued to receive attention as an inflation hedge amid falling real yields, while central bank buying also provided support for the yellow metal as a traditional safe haven.

Figure 1: July 2021 % change (US$)

Market review commodity index - July 2021

Source: Bloomberg as at 31.07.21.

Domestic market performance

The South African stock market kicked off the second half of the year on the front foot, despite some strong headwinds, both domestically and from China, during the month. The benchmark FTSE/JSE All Share Index delivered a total return of 4.2%, while the Capped SWIX closed up 2.7%. At a super-sector level, resources led performance (11.7%) while industrials eked out 0.9% and financials retreated by 1.1% over the same period. Local bonds (JSE All Bond Index, 0.8%) tracked the rand lower during the month as non-residents continued to pare back positions in SA sovereigns amid social unrest and heightened fiscal concerns. Listed property (JSE All Property Index) returned to negative territory to end the month down 0.4%. Cash, as measured by the STeFI Composite Index, remained broadly stable at 0.3% for the month. In currencies, the rand depreciated against the greenback, euro, and pound sterling.

At the sector level, it was a broadly mixed picture across the bourse. Key sector leaders over the month included healthcare, which was buoyed by Aspen Pharmacare and Netcare. Consumer services delivered sound returns with the retailers and travel & leisure names managing to end on a positive note, despite the impact of the looting and destruction during the month. In basic materials, industrial metals and general mining delivered robust returns, precious metals miners (i.e., Anglo American Platinum and Harmony Gold Mining Co.) capped their best monthly gains since February this year. The mining sector was buoyed by a stronger gold price and the commencement of the reporting season, which has seen some of the major names reward investors through bumper dividends and/or share buybacks. Financials, on the other hand, found the going extremely tough in July as they tracked the weaker rand lower. Technology services and index bellwether Naspers (which holds a 29% stake in Chinese tech behemoth Tencent via its Prosus unit) was a drag on the JSE over the month as Chinese authorities clamped down on the education tech sector.

Selection of FTSE/JSE All Share Index stock performance

Name Index weight July 2021 % return (ZAR)
Anglo American 9.6 14.8
Aspen Pharmacare 0.8 11.4
Richemont 11.3 7.9
Mr Price Group 0.7 3.6
Capitec Bank 1.6 -3.5
Prosus 0.9 -7.3
Tiger Brands 0.4 -7.7
Anheuser-Busch InBev 0.4 -10.4

Source: Bloomberg as at 31.07.21.

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