2H June Global Market Recap
16th June 2021 – 30th June 2021
The U.S. added 850,000 non-farm payrolls in June, beating market expectations of 700,000 and marking the highest since August last year. Since January this year, non-farm payroll in the United States has been increasing for six consecutive months. The number of initial jobless claims also declined, indicating that the job market continued to recover. However, the unemployment number edged higher to 5.9%, and labor force participation held steady, indicating the Federal Reserve’s threshold for “substantial further progress” has not yet been met.
In China, NBS Manufacturing PMI showed that the manufacturing activities in June was weaker than the historical level, reflecting the continuous decline of economic growth momentum. The decline in the production component was the main drag, reflecting large supply shocks. Strong external demand has been an important driving force for economic recovery so far, while new export orders have been declining for three consecutive months, which may indicate signs of a slowdown in export growth in the future. The non-manufacturing PMI in June was 53.5, 1.7 lower than that in May and below the market expectations of 55. The service sector may recover faster than the manufacturing sector, which is still faced with supply-side shocks.
The S&P 500 tumbled for four days in the third week of June, registering its worst week since February after the central bank’s surprise hawkishness. President Biden’s $579 billion infrastructure deal sent U.S. stocks to another all-time high on 25th June as it added optimism to the economic recovery. In June, the S&P 500 Index increased by 2.2%, the technology heavy Nasdaq Composite Index was up 5.5%, while the Dow Jones Industrial Average dropped 0.1%. The A-share stock market fluctuated and remained consolidating in June, with major large cap stock indexes falling, and small and medium cap stock indexes rising. Among the major indexes, the Shanghai Stock Exchange 50 fell 0.3%, the CSI 300 fell 1.8%, CSI small-cap 500 Index rose 2.1%, and the ChiNext stock index rose 7.6%.
Investors are focus on the Fed’s latest meeting minutes, which will be release in the first week of July, to see for further clues regarding the direction of the monetary policy. The 10-year U.S. treasury yield decreased in the month by 12.63bps and the USD three-month Libor rate hit a record new low of 0.118% on 14th June. From 21st June, China will allow banks to set ceilings on the deposit rates by adding basis points to the benchmark rate, a shift from the previous way of multiplying the benchmark rate. This is to guide bank deposits to return to a reasonable term structure by eliminating leverage effect and narrow the gap between long- and short-term deposits.
Across the board, most major CDS and OAS indices have recovered back to pre-COVID levels as the global economy continues to recover from the pandemic. Global credit trends are improving rapidly with significant differences across countries and sectors. Major drivers include rebounding economies, vast liquidity, and vaccination progress. Emerging markets remain a concern as the rate of vaccination is slow in those countries and could take a longer time to recover.
The dollar index rose by 2.7% in the month after two months of continuous decline since the start April. The rise came after the Federal Reserve signaled that it would raise interest rates and end emergency bond buying sooner than expected. China is trying to rein in the yuan as it surges to a 3-year high against the dollar.
Brent and WTI crude oil prices rose in the month by 7.9% and 10.8% respectively due to the OPEC outlook that US output growth will slow and optimism in the recovery of global oil demand. Brent and WTI crude oil prices have been recovering since the drop back in March 2020 as global economic recovery continues and rose by 45.0% and 51.4% YTD respectively. The CoreCommodity CRB Index hit a 6 year high with the index reaching levels back in mid-2015.