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Banking on pent-up demand

John Rosier explains why he remains optimistic on the market outlook
Banking on pent-up demand

Despite higher-than-expected inflation in July, bond markets continued to rally. In the US, the 10-Year Treasury fell to 1.25  per cent, its lowest since the end of February. In the UK, the government can now borrow for 10 years at 0.64 per cent per annum, having touched 1.0  per cent in mid-May. Bond markets are sending a clear message that they believe that the current uptick in inflation is transitory. More worryingly, some think it indicates that the recent bounce back in economic growth will be short-lived. Time will tell.

Except for Japan, China and Hong Kong, major equity markets performed well. Technology/growth stocks led the way, with lower bond yields giving investors the excuse to pay up for growth. For now, at least, the value recovery is on pause, with the Russell 2000 down 3.6 per cent while the Nasdaq 100 gained 2.8 per cent. The Nasdaq 100 is up 16.1 per cent this year. The S&P 500 gained 2.3 per cent , the CAC 40 1.6 per cent, the FTSE All-Share 0.5 per cent and the Dax 0.1 per cent. In the UK, the FTSE 250 had a good month with a gain of 2.6 per cent. In China, a crackdown on the power of its major technology companies caused the China A All-Share to drop 4.1 per cent, leaving it up only 3.1 per cent in 2021. The Hang Seng was off 9.9 per cent and the Nikkei 225 5.1 per cent. The FTSE All-World (GBP, TR) Index was flat on the month and up 11.9 per cent year-to-date.

Commodities rallied after May and June’s pause for breath. Nickel gained 6.9 per cent, (15.9 per cent), copper 4.5 per cent (27.4 per cent) and zinc 1.8 per cent (8.8 per cent this year). Brent crude gained 0.8 per cent to $73.25 per barrel. Gold had a better month gaining 3.3 per cent.

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