Our latest monthly investment update for July 2021 looks at how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of June at 7,037.47 points, up 14.86 points or 0.21% during the month. The index narrowly avoided a dip in June, which would have broken its winning streak of four months of consecutive gains, with financial and house building stocks losing ground. It was nearly the first month since January that the FTSE 100 lost ground for a month.
European stocks started July in positive territory, despite the furlough scheme in the UK beginning to wind down. The FTSE 100 opened 0.9% higher, making up for lost ground the previous day, and the CAC in France was 0.8% higher shortly after opening, with the DAX in Germany up 0.6%. Economic recovery in the UK faces pressure from worker shortages and an extension to pandemic restrictions, with the Delta variant of the coronavirus accelerating rates of infection.
The UK government extended its roadmap for a month in June, with all remaining restrictions now scheduled to be removed on 19th July. Economic recovery appears to be slowing by some measures. The latest ONS data shows debit and credit card transactions down 5% in the week to 17th June and declining retail footfall for a third consecutive week.
Businesses face staff shortages and rising prices in the supply chain, driving higher price inflation and rising living costs. Bank of England chief economist Andy Haldane has warned that monetary policy needs to be tightened quickly to “nip inflation in the bud.” Speaking at the Institute for Government, Haldane explained there is a positive story to tell about the supply side of the economy, partly because employees are more productive withoutthe need to commute, something he referred to as one of the “least productive forms of human activity.” But he warned about rising price inflation, saying he would not be surprised if it exceeded the Bank’s target of 2% by the end of the year, if left unchecked.
In positive domestic economic news, Nissan has announced a £1 billion investment in its Sunderland car plant, building a new electric vehicle battery factory and creating 1,650 new jobs, with thousands more jobs created in the UK supply chain. Chancellor Rishi Sunak, delivering his speech at Mansion House at the start of July, is expected to commit to making the UK the most “advanced and exciting financial services hub in the world.”
Sunak will also announce plans to force businesses to report their environmental impact, telling investors how climate change is likely to affect firms as part of the new Integrated Sustainability Disclosures Requirement. House prices in the UK rose 13.4% on average for the year to June, at their fastest pace since November 2004. The latest house price survey from building society Nationwide reported average house prices rising to £245,432 in June, with prices close to a record high relative to average incomes.
Robert Gardner, chief economist at Nationwide, said:
“The pandemic is an unusual kind of shock – it has stimulated housing market activity rather than the shock holding back the market which is normally what happens.”
Despite global inflation fears, global stocks are trading close to record highs, supported by the economic recovery in most developed countries. The FTSE All-World Index closed at 474.9 at the end of June, near its all-time high of 476.6 achieved a couple of weeks earlier. Analysts appear to be bullish about prospects for continued equity market growth, despite the headwinds posed by the Delta variant.
A fine balance between economic growth and manageable inflation, not prompting higher interest rates, is required to support the continued equity bull market. Mergers and acquisitions (M&A) activity globally broke records for a second consecutive quarter, with cheap money and significant cash reserves driving more activity. Deals worth $1.5 trillion were announced in the second quarter, the best three month period on record for global M&A activity, and up 13% compared to the first quarter of the year.Manufacturing activity in the eurozone expanded at its fastest pace on record in June, according to the latest Purchasing Managers’ Index (PMI) from IHS Markit.
The PMI stood at 63.4 in June, up from 63.1 in May. Despite the growth in manufacturing activity, factories also faced their sharpest rise in raw material costs in more than 20 years. Chris Williamson, chief business economist at IHS Markit, said:
“Euro zone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with the further relaxation of COVID-19 containment measures.”
Global oil prices started to rise at the end of July as OPEC and allied countries postponed their negotiations to create more time to make a compromise agreement on supplies. OPEC+ is considering a continued extension to crude oil supplies as the global economy recovers, but there is a disagreement between the leading oil producers. Benchmark Brent Crude oil rose in June to reach $75.51 a barrel at the start of July. The benchmark 10-year government bond (gilt) yield declined again during June, reaching 0.73% at the start of July and remaining very low by historical standards