Investment update for April 2021
Recovery continues in Australian economy and labour markets despite vaccination delays
The global economy continues to recover with GDP rebounding, as vaccine rollouts progress and restrictions start to ease. Industrial production and business fixed investment has improved. Manufacturing and services Purchasing Managers Index (PMI) surveys in key economic regions have continued to trend upwards, with the US and Australia being at high levels.
Inflation has started to rise driven both by supply-side issues, commodity price rises and increasing demand as restrictions are eased. It remains to be seen if this is only a temporary increase or more structural inflationary pressures.
In the US, more than 140 million people have taken the first dose of vaccination for COVID-19. The economy continues to recover, and the labour market is improving. Wage growth and employment is recovering. However, the fallout from COVID-19 is far from gone; permanent job losses concentrated in certain industries are at elevated levels and have yet to show signs of improvement. Businesses are more positive about the economy with surveys showing that the planned expenditure is likely to increase. Monetary conditions remain favourable with the US central bank retaining the current level of rates at near zero.
In Europe, the economic recovery remains weak. Industrial production has picked up but retail sales lag as the COVID-19 situation continues to impact. However, manufacturing and services PMIs have picked up in April, suggesting some potential improvement. The European Central Bank (ECB) has continued to pledge its support for accommodative monetary conditions.
In Japan, growth is gradually improving. Industrial production growth is positive and export growth has recovered led by strong demand from China. Manufacturing PMI is positive in April, but services PMI remains at contractionary levels. The Bank of Japan (BOJ) continues to run an ultra-accommodative monetary policy to support growth and induce inflationary pressure.
On the domestic front, the economic recovery has been strong. The labour market has continued to recover with total jobs being added, the unemployment rate improving and the underemployment rate declining to pre-pandemic levels. The rollout of vaccines has been at a much slower pace compared to other key countries but the very limited cases of transmission of the virus in the community means the domestic economy has little restriction.
Equities have continued the trend of strong positive returns. US equities were again the standout performing in the month, while Japanese equities produced a small negative return. Australian Resources equities produced particularly strong returns for the month as commodity prices increased materially.
Government bond yields marginally declined providing small positive returns for fixed interest over the month.
The AUD continued to gradually move higher against the USD over the month, supported by ongoing strength in the price of iron ore.
Listed property and infrastructure also produced positive returns, along with the broad equity market.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month.
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