2H July Global Market Recap
15th July 2021 – 31st July 2021
Global cases have reached 199.5 million and overall death toll hit 4.26 million on 4th August, according to data from Johns Hopkins University. More than 4.27 billion doses of vaccine have been administered across 180 countries, fully vaccinating 27.8% of the total population. China recorded 71 new domestic cases on August 3, the largest daily count since Jan 30. Nanjing and Yangzhou, where most of China's local cases have been recorded since July 20, have suspended domestic flights, long-distance shuttle buses, taxis, and ride-hailing cars from entering and exiting the two cities.
The U.S. GDP grew at an annualized rate of 6.5% in the second quarter, mainly driven by personal expenditure, underpinned by massive fiscal stimulus, rolling out of vaccinations and swift reopening. The private investment drag was the largest, mainly due to the substantial negative impact of residential investment. Retail sales in the U.S. unexpectedly rose 0.6% in June, after dropping 1.7% in May, supported by robust goods consumption. China’s economy has by and large recovered from the pandemic’s disruption, but manufacturers are facing with new challenges as raw material costs surge. The NBS manufacturing PMI was 50.4, falling for four consecutive months, reflecting the continuous weakening of the economic growth momentum. High raw material prices have slashed industrial profits and prevented some Chinese exporters from taking on new business.
China, Hong Kong, and shares of Chinese companies listed in the U.S. tumbled on regulatory clampdowns in July, as investor concerns over government regulations weighted heavily on stocks in the education, real estate, and technology sectors. The short-term panic selling in the market was caused by sentiment fluctuations as investors are pricing the probabilities that the government will tighten regulations on other industries that have seen robust growth over the years. Among the major indexes, the CSI 300 fell by 7.90%, Shanghai SE Composite Index fell by 5.4%, and the ChiNext index fell by 1.06%. As Beijing continues to crack down on monopolistic behavior, the Hang Seng index fell under pressure from Chinese internet companies. The Hang Seng Index fell by 9.9% and Hang Seng China Ent Index ETF slumped 13.4%.
The 10-year U.S. treasury yield decreased by 24.57bps in July, after surging by 82.7bps in the first quarter and dropping 27.3bps in the second quarter. The PBOC is continuing to keep their policy stable despite a recent surprise move to add liquidity to the financial system. The benchmark lending rate has been kept unchanged for the 15th straight month despite growing expectations for a cut after a surprise lowering of the bank reserve requirements.
Credit spreads for corporate borrowers from sectors that will benefit the most from reopening from lockdowns are drifting wider as the coronavirus infections rise thanks to the spread of the delta variant. The credit distress in China is the most significant risk to the global credit market now because China is the second-largest U.S. dollar corporate bond market in the world with $425 billion in bonds outstanding and the second-largest domicile of dollar high-yield debt at $103 billion.
The dollar index has been on a rise since May in a flight-to-safety bid, as investors remained anxious about a fast-spreading delta variant that could throttle global growth. The yuan remains stable against the dollar in the month despite the recent selloff in more than a year as concerns over the crackdown on technology and other lucrative sector remained firmly in place. China’s digital yuan poses challenges to the U.S. dollar’s status as the de facto monetary reserve as it has already launched its digital yuan to more than a million Chinese citizens, while the U.S. is still largely focused on research.
Brent and WTI crude oil prices rose by 47.4% and 52.4% YTD respectively, while a shadow of doubt is now being cast on the future growth prospects for key raw materials such as oil, with a new strain of Covid-19 spreading throughout the world. Iran officially inaugurated its new $2 billion exports terminal by loading 300,000 barrels on an oil tanker off the Sea of Oman, enabling the sanction-hit country to bypass the Strait of Hormuz for oil exports. Chinese authorities have issued new rules on the management of price indexes for commodities and services as the government steps up scrutiny of the country's commodity markets and battles to contain inflation. The CoreCommodity CRB Index hit a 6 year high with the index reaching levels back in mid-2015.