Market Review – month ending 31 May 2021

A macroeconomic recap of the month and financial market performance.

Jun 10, 2021

7 minutes

A macroeconomic recap of the month and financial market performance.
Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming little.
Fred Schwed Jr, author of the book 'Where are the customers's yachts?'

Global market performance

The month was marked by bouts of volatility as investors weighed an encouraging global economic recovery against associated inflation worries and the potential scaling back of ultra-loose monetary policy.

Overall, global equities had another decent innings in May, albeit at a slightly slower run rate than the previous month. Expectations of a robust global economic recovery and the return of inflation saw value continue to garner favour over growth stocks. Developed market equities (MSCI World Index) ended the month 1.5% higher, lagging their emerging market peers (MSCI Emerging Markets Index) which posted gains of 2.3%. Regionally, US equities (S&P 500 Index, +0.5%) touched all-time highs during the month, with first-quarter (Q1) corporate earnings posting a strong beat on consensus expectations, but technology and consumer discretionary sectors weighed on the bourse. Global growth optimism, an improved vaccination rollout, alongside a dovish European Central Bank (ECB) saw European equities (Euro Stoxx 600 Index, +3.6%) record a fourth straight month of gains to end the month as the best-performing major market. Elsewhere, Asian stocks benefitted from cyclical tailwinds, lifting Japan’s Topix Index +1.2% higher. Mainland China’s CSI 300 Index (+5.9%) went on a tear towards month-end, with foreigners embarking on a shopping spree of local stocks as the yuan’s advance to a three-year high made onshore assets more appealing.

It was another flat month in bond markets, as inflation jitters continued to fuel volatility over the period. The Bloomberg Barclays Global Aggregate Bond Index recorded its second straight month of gains, up 1.1% for the period, with UK and US bonds outperforming European sovereigns. In the cryptocurrency space, it was a brutal month as Bitcoin (-35%) endured its worst calendar month since November 2018 amid an energy consumption critique and a tough regulatory crackdown by Chinese authorities. Notwithstanding, the digital currency is still up 35% year to date and c.300% over one year.

All returns are quoted in US dollars.

United States

The US economic revival is running full steam ahead on the back of a consumer turbocharged by the US government’s fiscal largesse, re-openings and an impressive inoculation programme. The manufacturing and services purchasing managers’ indices (PMIs) rose to their highest levels on record in May. However, while consumer demand has bounced back strongly, the speed of the rebound has not all been good news, with production constraints being further compounded by severe supply-chain disruptions and businesses facing rapidly rising input costs. CPI inflation printed 4.2% in April 2021, from 2.6% in March. The Fed’s preferred inflation measure, the personal-consumption expenditures index (which strips out food and energy), rose to 3.1% in April, way above the Fed’s 2% target, and the highest level since the 1990s. All that said, the Fed remained steadfast in its view that these prints are for the most part being driven by “transitory factors” which are likely to dissipate later in the year once the deluge of fiscal stimuli and supply bottlenecks unwind. However, some murmurs from certain officials in recent weeks suggest the Federal Open Market Committee is inching ever closer to commencing discussions on when to begin tapering. The next big data point for the Fed and market participants to digest will be the May jobs report – this ought to provide the Fed with a better look at assessing the strength of the labour market recovery from the depths of COVID, and whether supply bottlenecks fuelling rising input costs are beginning to moderate.

Euro area

The European Union got off to relatively slow start in rolling out vaccines, but they have since turned the corner, with the pick-up in the speed of vaccinations across major economies beginning to show up in the economic data. The prospect for robust growth this year have improved, as several high-frequency data point to a strong rebound in Q2 from a double-dip recession, with consumer spending on travel, leisure and entertainment bouncing back as vaccinations rise and infections trend lower. The region’s PMIs maintained their positive momentum from the previous month. The manufacturing PMI has been on an upward trajectory since last year, but the services PMI was largely held back during this period owing to persisting lockdown restrictions and a lethargic start to vaccinations. Improvements on these fronts has since lifted the services PMI to its strongest pace of expansion since June 2018, with a reading of 55.2 in May. The ECB remained upbeat in the economic outlook for the bloc, despite citing concerns of rising financial stability risks posed asset bubbles. The ECB’s Governing Council is scheduled to meet on 10 June 2021, where it is expected to keep key rates unchanged, while numerous ECB leaders have also reiterated that it is too early to begin discussions on tapering, and for Europe not to “extrapolate from what is happening in the US”.

United Kingdom

The UK economy continued its recovery with GDP rising 2.1% month on month in March. Retail sales saw a rise of 9.2% on the month in April on the back of pent-up household savings and fiscal stimulus. However, as is the recurring theme in reopening economies, businesses have struggled to keep up with the strong rebound in demand due to supply-chain bottlenecks and delivery delays, and input costs soaring to record levels. Unsurprisingly, producer price inflation soared to 3.9% in April, albeit from a very low base. Headline consumer prices rose 1.5% year on year in April, from 0.7% in March, ahead of consensus expectations of 1.4%, marking the highest print since March 2020 – driven largely by energy and retail sales. The Bank of England (BoE) Monetary Policy Report (MPR) published during the month projected that consumer prices would indeed breach the bank’s 2% target by the end of 2021 on higher energy prices. However, like the Fed, BoE policymakers expect above-target prices to be transitory and revert to near 2%.


Following a robust expansion of 18.3% year on year in Q1 2021, China’s economy cooled down in April as retail sales missed consensus expectations, thus throwing a spanner in the works of the world’s second-largest economy. Incoming data revealed flat domestic consumer spending data, while fixed investment spending and industrial production were a beat on expectations. The latter rose at a slower pace in April at +9.8% year on year from 14.1% in March. Fixed investment also moderated from the previous period, while retail sales, (a key measure of domestic consumption) also disappointed, up 17.7% on an annual basis in April from a height of 34.2% in March, well short of consensus.

Retail sales were of particular disappointment to policymakers who continue to monitor the data as China pivots towards a consumption-driven economy and one less dependent on manufacturing and exports. The manufacturing PMI held steady in May as soaring input prices weighed on smaller businesses, while the commodity price boom has also dragged on the profitability of those firms reliant on raw materials. Chinese exporters have also had to contend with the headwinds of a stronger local currency which has found support from a rebounding economy as well as investors’ global hunt for higher-yielding markets.

South Africa

Incoming data points to a modest expansion of the SA economy over Q1 2021, following the worst contraction in 2020 in 100 years owing to the COVID-19 pandemic. South Africa recorded its twelfth consecutive trade surplus in April, aided by robust prices in precious metals exports and also reflecting the weakness in imports demand. Manufacturing and mining production (which make up approximately a third of GDP) and retails sales rose in Q1 relative to 4Q 2020. The manufacturing PMI continued to track above the expansionary 50 mark, rising to 57.8 in May from 56.2 in April. That said, the looming COVID third wave, the associated containment measures and a resumption of rolling power outages are likely to weigh on factory activity in the coming months. In labour markets, the official unemployment rate rose 32.6% in the first three months ending March 2021 – the highest jobless rate since the introduction of the Quarterly Labour Force Survey back in 2008. While this was very much fait accompli, the figure presented another sobering reminder that despite the economic rebound, SA continues to grapple with a structurally high jobless rate in the absence of desperately needed structural reforms and policy certainty, which are key conditions to get the country back on a sustainable growth path.

Headline inflation (4.4% year on year, from 3.2% in March) rose to a 14-month high in April, fuelled largely by rising food inflation and transport prices. The acceleration in these prices was very much expected given the rise in international oil prices in recent months and we expect this upward pressure to continue as oil prices average higher, while locally, electricity prices are due to get a jolt in July. The South African Reserve Bank’s (SARB) policy committee unanimously left interest rates unchanged at its 21 May meeting.

Commodity markets

The Bloomberg Commodities Index closed the month 2.7% higher, as optimism surrounding the global economic recovery continued to buoy commodity markets. The resurgence in fuel demand lifted international oil prices as European countries rolled back restrictions on travel. Iron ore endured a bumpy ride during the month – prices soared to record levels amid robust demand for this steel-making ingredient, before cooling off after Chinese authorities stepped up efforts to arrest runaway commodity prices, while it will also roll out production restrictions to reduce emissions. With growing talk of the return of inflation, it was no surprise to see gold attract attention, erasing its 2021 losses as hedge funds increased their net-long positions for the yellow metal.

Figure 1: May 2021 % change (US$)

Market review commodity index - April 2021

Source: Bloomberg as at 31.05.21.

Domestic market performance

The South African stock market capped its seventh straight month of gains, tracking higher in line with global peers. The benchmark FTSE/JSE All Share Index ended 1.6% higher, while the Capped SWIX posted an even better 2.9% at the close. At a super-sector level, financials (+9.3%) did most of the heavy lifting, aided by industrials which finished a modest 1.6% higher, while resources ended in the red for the first time since the selloff in October. Local bonds outperformed equities two months on the trot, as the bond market continued to find favour from a supportive external backdrop and positive domestic dynamics, with yields edging lower (yields fall as prices rise) across most tenors, apart from the 2023 note, while foreigners returned to be net buyers over the period. Listed property (JSE All Property Index) pared back some of its stellar gains in May, falling 3.2% over the month. Cash, as measured by the STeFI Composite Index, was broadly unchanged at 0.3% for the month. In currencies, the rand rallied to its best level against the US dollar since 2019 amid the risk-on trade, also ending stronger against the euro and pound sterling.

At the sector level, it was a broadly mixed picture across the bourse. Key sector leaders over the month were found in consumer services (retailers, travel & leisure) and financials (banks); ‘SA Inc.’ (companies that derive most of their revenue from South Africa) performed strongly over the period. Notwithstanding the resumption of Level 2 lockdowns, consumer-facing shares held their ground, with some names touching multi-year highs during the month, reflecting investor optimism on the recovery of earnings going forward. Banks were among the best performers over the period, finding support in a stronger local unit. Bucking the trend was the resources sector, as commodity prices took a breather during the month, before stabilising as the month drew to a close.

Selection of FTSE/JSE All Share Index stock performance

Name Index weight May 2021 % return (ZAR)
Mr Price Group 0.7 28.3
Gold Fields 1.8 26.5
ABSA Group 1.2 16.9
Richemont 10.2 11.1
BHP Group 10.6 -4.5
Sasol 1.5 -8.2
Prosus 1.2 -9.7
Sappi 0.3 -11 .6

Source: Bloomberg as at 31.05.21.

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