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Monthly Market Snapshot: July 2021

A monthly update on equity, fixed income, currency, and commodity markets.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Equities

Global equities (+0.7%) advanced for the sixth consecutive month, ending July with a 14.5% gain year to date. The global proliferation of the Delta variant of COVID-19 fueled anxiety about the pace of the global economic recovery and forced governments to reinstate targeted lockdowns in many countries, particularly in Asia. Developed markets significantly outperformed emerging markets, which were dragged down by a sharp drop in Chinese equities. China’s regulatory crackdown on private education businesses and companies that handle large quantities of data pummeled the shares of Chinese technology stocks, sparking fears of more regulations on private companies. On the monetary front, the European Central Bank (ECB) unveiled a new policy framework that aims to keep inflation at 2% over the medium term but allows some room for a temporary overshoot. OPEC+ reached a deal to phase out production cuts by September 2022, as stronger economic growth drove oil prices to a multiyear high.

US

US equities (+2.4%) advanced for the sixth consecutive month, as risk sentiment continued to be bolstered by well-established themes, including vaccine momentum and efficacy, accommodative financial conditions, central bank liquidity tailwinds, and strong corporate earnings. Growth stocks outperformed value stocks, as the reflation trade continued to falter amid concerns about peak growth, easing inflation expectations, waning fiscal stimulus, and fears that the Delta variant could slow the recovery. The rapid spread of the virus dominated headlines, with daily US infections exceeding 100,000 at the end of July. However, many economists and strategists were sanguine about the virus’s economic risks, given vaccine efficacy, high vaccination rates among the most vulnerable populations, and reluctance among state and local officials to impose new restrictions. US Federal Reserve (Fed) Chair Jerome Powell affirmed that the Fed discussed tapering its asset purchase program, but he provided no details about the timing or pace. With 59% of companies in the S&P 500 Index having reported second-quarter earnings results, 88% of those companies reported earnings that exceeded forecasts by an average of 17.2%. The blended year-over-year earnings growth rate for the index in the second quarter was 85.1%, and the forward 12-month price-to-earnings ratio stood at 21.2. The Senate voted to advance a roughly US$1 trillion bipartisan infrastructure package, starting the process of debating and amending the bill.

Economic data released in July indicated firmer growth in the US economy amid rapidly rising inflation. Job growth accelerated significantly above expectations in June, as nonfarm payrolls surged by 850,000 on sizable gains in the leisure & hospitality industry. This marked the largest employment growth in…

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