Investment update for May 2021
Higher than expected inflation data surprised markets
In May, the strain on the India’s health system and economy, following a surge in COVID-19 cases, highlighted the need for swift global vaccination rollouts. Inflation data surprised markets over the month. Equity markets finished slightly positive by month end. Emerging markets produced a positive return, while developed markets were slightly positive for the month and Australian equities provided a small positive return.
While business conditions and PMI data were mixed, China’s economic recovery continued in May due to strong global demand for manufactured goods.
In the US, improvement in retail sales, manufacturing and services continued, and wage growth has been strong. Inflation data for May was higher than expected, and The Federal Reserve noted tapering its bond purchases would be considered.
Economic output and sentiment across Europe also showed small improvements. Vaccination rates picked up which positively impacted the services and retail sectors. Vaccine rollout in the UK continued as lockdown measures were further eased. Positive retail sales data indicated an improvement to consumer sentiment.
Domestically, the Reserve Bank of Australia (RBA) reiterated the cash rate would remain unchanged until at least 2024. The domestic economic recovery has been quicker than expected with inflation and wage pressures subdued. The RBA continue to monitor lending standards in response to concerns of strengthening house markets, noting an increase of borrowing by investors over the month.
The AUD fell against most major currencies, most notably against the EUR and GBP and rose slightly against the JPY. Oil prices gained for the month. The iron ore and copper prices hit all-time highs. Government bond yields fell slightly. Bond indices produced slightly positive returns over the month. Listed property produced small positive returns while listed infrastructure returns were flat.
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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