Monthly Market Pulse: July 2021

The Covid pandemic may be subsiding, but the new normal might not look the same as 2019. The spectre of inflation has had markets concerned in recent months[i]. According to a recent CNBC survey, wealthy investors are worried about inflation[ii]. Indeed, the survey results revealed that as many as 65% of millionaires are concerned about inflation caused by recent government spending. The UK has seen similar concerns as consumer price inflation hit a two-year high of 2.1% in May, exceeding the Bank of England’s target[iii]. The Bank for International Settlements (BIS) said inflation spike could raise the cost of borrowing to post war highs[iv].

Chart of the month: Household net cash savings

Source: Bank of England[v], Blend Network

Politics & Economics

  • Data released in early-June showed that US consumer prices had increased by 5% in the year to May, fastest pace since the summer of 2008[vi]. The 3.8% rise in the core inflation rate, which excludes food and energy prices, was the sharpest increase in nearly three decades[vii]. This led to rising concerns about inflation, not least in the UK[viii].
  • According to the Bank of England, since the start of the pandemic in March 2020 up to April 2021 households have saved or repaid debts of £195bn or an average of £14bn a month. This compares with £4.8bn or £0.4bn a month in the 11 months to February 2020[ix]. With approximately 27.8m households in the UK, this means that families have saved an average of just over £7,000 a year or £500 per month since the first lockdown in March 2020, compared with approximately £175 a year or £15 a month in the eleven months prior to the pandemic[x]. A big question for the economic recovery is whether households will splash the cash once restrictions are lifted, providing a consumer-led boost to the economic recovery. According to Bank of England’s chief economist, Andy Haldane, as much as 20% of those savings could be spent before the end of the year[xi].

Business

  • According to the latest Purchasing Managers’ Index (PMI) data, the UK’s factories extended their post-lockdown recovery in June and ramped up hiring, but they also faced record inflation pressures due to supply chain issues caused by the pandemic[xii].
  • Euro area PMIs came in at their highest on record in June, indicating rapid growth in business activity and offering the latest in a series of positive data surprises. Recent economic data out of the euro zone suggests its recovery is gathering steam[xiii].

Real Estate

  • According to the Nationwide House Price Index, the price of the average UK house soared by 13.4% year-on-year in June, the largest increase witnessed in over 17 years. There is a base-effect because in June last year prices had collapsed in the aftermath of the first lockdown and also the stamp-duty holiday contributing to the strength. But despite that the market has maintained significant momentum in recent months[xiv]. That being said, the month-on-month growth has clearly started to ease over the past few months (2.3% in April, 1.8% in May and 0.7% in June).
  • Average UK house prices rose by 10.3% year-on-year in Q2. Northern Ireland saw average house prices rise by 14% year-on-year while Scotland saw a 7.1% increase[xv].

Equity Markets

  • Halfway through 2021, stock markets have been full speed ahead[xvi]. Some of the world’s major indices such as the S&P500, FTSE100, EuroStoxx50 and Germany’s DAX ended June in positive territory for the fifth straight month, both notching their latest all-time high to close out June. The Dow Jones Industrial Average and Nasdaq Composite both were up by more than 12% each on the year to the end of June.

FX & Commodities

  • Oil price has continued to swiftly recover from the $22 per barrel levels it fell to in the wake of the Covid-19 pandemic in March 2020 and in late-May reached above $70 for the first time since September 2018[xvii]. Other commodities have followed suit with analysist predicting oil could top $100 as commodities boom shifts away from China[xviii].

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Data found in this article are the property of the sourced information. Whilst every effort has been made to ensure this data is correct, Blend Network cannot guarantee there are no errors in the sourced data.

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[i] Source: www.theguardian.com/business/2021/may/15/the-fear-that-haunts-markets-is-inflation-coming-back

[ii] Source: www.cnbc.com/2021/06/08/wealthy-investors-are-worried-about-inflation-cnbc-survey-shows.html

[iii] Source: www.bbc.co.uk/news/business-57596298

[iv] Source: www.theguardian.com/business/2021/jun/29/post-covid-inflation-could-push-interest-on-uks-debt-above-100bn-warns-bis

[v] Source: Bank of England www.bankofengland.co.uk/statistics/money-and-credit/2021/april-2021

[vi] Source: www.cnbc.com/2021/06/10/cpi-may-2021.html

[vii] Source: www.cnbc.com/2021/06/10/cpi-may-2021.html

[viii] Source: www.ft.com/content/78dd0115-b54e-4a7b-a68e-32ece50425fb

[ix] Source: www.icaew.com/insights/viewpoints-on-the-news/2021/jun-2021/chart-of-the-week-household-savings

[x] Source: www.icaew.com/insights/viewpoints-on-the-news/2021/jun-2021/chart-of-the-week-household-savings

[xi] Source: www.theguardian.com/business/2021/may/15/the-fear-that-haunts-markets-is-inflation-coming-back

[xii] Source: www.reuters.com/world/uk/uk-factories-ride-demand-boom-price-pressures-hit-record-pmi-2021-07-01/

[xiii] Source: www.cnbc.com/2021/07/01/wall-street-expects-european-stocks-to-outperform-the-us-this-year-heres-why.html

[xiv] Source: www.nationwide.co.uk/about/house-price-index/headlines#tab:Headlines   

[xv] Source: www.nationwide.co.uk/about/house-price-index/headlines#tab:Headlines

[xvi] Source: https://uk.investing.com/

[xvii] Source: https://uk.investing.com/

[xviii] Source: www.marketwatch.com/story/oil-could-top-100-as-commodities-boom-shifts-away-from-china-says-top-economist-11625144052

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