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Monthly Market Snapshot: June 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 (+2.2%) advanced for the fifth consecutive month, ending June with a 13.6% gain year to date. Markets were fueled by improving global economic data, strong corporate earnings, abundant fiscal and monetary stimulus, and higher vaccination rates. The global decline in COVID-19 cases since mid-April came to a halt, with the rapid spread of the highly infectious Delta variant disrupting plans to lift lockdowns in many countries and reopen economies. Stronger economic growth and rising inflation in a number of countries prompted some central banks to raise interest rates or consider tighter monetary policy, with the US Federal Reserve (Fed) signaling that interest rates could rise sooner than expected. The US secured the backing of 130 countries for a global minimum tax (GMT) of at least 15% on corporations, as part of a broader agreement to overhaul international tax rules. The GMT would prevent multinational firms from avoiding taxes by shifting their profits to countries with low tax rates and is a key element of US President Joe Biden’s plans to increase revenue for infrastructure and clean-energy projects.

US

US equities (+2.3%) advanced for the fifth consecutive month, with improving vaccination rates and waning business restrictions supporting a broad reopening of the economy. Economic data indicated that supply-chain disruptions, robust demand, and labor shortages exacted significant upward pressure on consumer and producer prices in May, prompting the Fed to considerably raise its inflation forecast and shorten its expected time frame for future interest-rate hikes. The Fed lifted its 2021 year-end forecast of personal consumption expenditures — its preferred measure of inflation — to 3.4%, a substantial increase from its earlier estimate of 2.4%, while the Fed’s dot-plot projections signaled the potential for two interest-rate hikes in 2023. This surprisingly hawkish shift in expectations dented the appeal of value and cyclically sensitive stocks, triggering a rotation into growth stocks. A bipartisan group of senators reached an agreement with President Biden on an infrastructure package worth approximately US$1.2 trillion. However, significant legislative obstacles threaten to derail the plan, as Biden and top Democrats indicated that it can only advance in tandem with a substantially larger bill, including trillions more in funding for health care, childcare, higher education, and climate change — measures that would accompany tax increases, which are vehemently opposed by Republicans.

Economic data released in June indicated that the US economy continued to strengthen amid rapidly rising inflation. Employment growth improved, with many employers struggling to find qualified employees to meet the surging demand for goods and services. Nonfarm payrolls grew by 559,000 in May, below forecasts for 675,000, but well above gains of 278,000 in April. Job growth is forecast to surge by 706,000 in June, while initial jobless claims at the end of June were the lowest since the onset of the pandemic, as the expiration of enhanced employment benefits in many states spurred…

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