Selected Market Indicators for Periods Ended 31 May 2021

Global equities continued their upward trajectory in May as many developed economies continued to reopen, leveraging off surprisingly efficient vaccine rollouts. Hopes of a complete global reopening are still minimal however, as highly infectious variants continue to plague developing nations and bewilder health professionals. All major indices produced positive returns in May in local currencies except the NZX, which fell 3.2%. Leading the indices tracked were the S&P ASX 200 and the MSCI Europe, which both returned 2.3%.

The growth outlook is looking positive as purchasing manager indices (often used as a gauge of business confidence) around the globe are sitting well in the ‘expansionary’ zone. The US ISM Manufacturing PMI for May was 61.2, up from 60.7 the month prior and the IHS Markit Eurozone Manufacturing PMI was revised higher to 63.1 in May, up from 62.9 in April. A reading above 50 indicates an expansion when compared with the previous month. This business confidence suggests the strong recovery momentum could continue as reopening economies benefit from pent up domestic demand for goods and services. In some sectors this pent up demand is exceeding supply as constraints on supply chains and labour shortages emerge.

Significant Developments for May include:

• The Biden administration continued its extremely accommodative positioning this month, revealing a $6 trillion federal spending plan, the largest expansionary budget proposal since World War II. The budget will aim to drastically upgrade the nation’s infrastructure, education system and target climate change. Australia also proposed an extremely expansionary budget, despite their already solid growth trajectory.
   
• An organised ransomware group by the name of ‘Darkside’, orchestrated an attack on US based oil pipeline company, Colonial Pipeline Co., forcing them to take their operations offline to attempt to limit the damage. This caused major disruptions to the supply of fuel to the East Coast of America, with Colonial supplying roughly 45% of gasoline, diesel, home heating oil, jet fuel and military supplies. Colonial agreed to pay Darkside their ransom of US$4.4m in Bitcoin, most of which has since been seized by the Department of Justice.
   
• Labour shortages are driving up wages in some sectors around the world as companies struggle to entice employees to return to work after lengthy periods of furlough. This is being felt especially hard in the UK where an estimated 1.3 million people have left the country since late 2019 as a result of a combination of COVID and Brexit.

Trans-Tasman Equities

There were mixed results within Trans-Tasman equites in May as New Zealand lost 3.2% while Australia gained 2.3%. A key driver of the NZX50’s decline was a fall in index heavy weight, Fisher & Paykel Healthcare (-17.1%), after the company failed to provide investors with sufficient confidence on its outlook.

Global Equities

Global Equities saw marginal gains in local currency over May, gaining 1.0% (flat in NZD). The MSCI World experienced some volatility over the month, prinficpally driven by inflationary fears. Factsheet data showed that companies citing inflation in first quarter earnings calls was the highest level in at least ten years.

Property and Infrastructure

Global Property gained 1.4% in May as the asset class continued its recovery from the damaging effects of COVID-19. While the recovery of commercial property is underway (albeit slow), occupancy rates are still far below pre-pandemic levels. After a positive month in April, Infrastructure was flat over May as the sector continues to struggle to recapture its pre-pandemic highs.

NZ Bonds and Cash

The NZ Bond composite declined 0.7% in May. The NZ 10-year bond yield trended slightly higher over the month finishing May at 1.85%, up from 1.62% at the end of April. NZ Corporate Bonds also declined 0.5% in May, driven by the prospect of higher inflation and interest rates.

Global Bonds

Global Bonds were marginally positive in May as 10-year yields were essentially flat for another month despite the elevation of inflation figures. The US 10-year fell across the month from 1.59% to 1.58%. Investment grade spreads were flat and remain below pre-pandemic levels.

Currency

The NZD had a mixed month, up 1.3% against the AUD and 1.5% against the USD and JPY, but down against the GBP (-1.2%), EUR (-0.1%) and the Trade Weighted Index (-0.4%). The NZD jumped against the USD following a projection by the RBNZ that saw possible increases to the OCR as early as the second half of 2022, conditional on the economic outlook.