The economic recovery is expected to continue through the second half of 2021, underpinned by rising vaccination rates and the rebound in consumption as restrictions are lifted. Australia’s gross domestic product (GDP) has now returned to its pre-pandemic level and the labour market has retained its momentum, even with the end of the JobKeeper Payment Scheme.
A positive global lead (US, European and Chinese markets) helped the Australian share market reach a new record high, even with expanding lockdowns across the country. Strong gains were seen in stocks that like a lockdown, including health and IT shares, offsetting weakness in resources.
Despite this, shares remain at high risk of short term correction as COVID-19 cases rise and an inflation scare continues.
The economic impact of these lockdowns is becoming more evident if you consider current downward trend of the ‘Australian Economic Activity Tracker’ (produced by AMP) – this tracker looks at indicators such as job ads, retail foot traffic, consumer confidence and hotel bookings among others to provide a guide to overall economic activity. In April 2020, it took a sharp nosedive in response to the national lockdown but was trending up from that point onwards.
The current downward trend, which commence around May 2021 or so, is a softer downwards fall and thought to be because the growth in other states is offsetting those locked up, plus households have found more ways to cope through the lockdowns.
Australian retail sales fell -1.8% in the month of June but rose 1.3% overall in the June quarter. Payroll jobs fell over the last two weeks of June.
Globally, US economic activity is heading upwards but at a slow rate, and the European Tracker is pushing above pre-COVID levels.
New COVID-19 cases are continuing to rise on a global level with over 500,000 new cases a day (Australia’s are around 160 per day). Those with higher vaccination levels (US, UK, Europe) are also seeing an increase in new cases but the numbers in terms of deaths and hospitalisations are said to be more subdued.
For those interested, 28% people globally have now had at least one dose of vaccine with that number being 56% in developed countries. Canada is now at 72%, the UK at 70%, US at 57% and Australia at 30%.
The Market Outlook…..
Sharesremain vulnerable to a short-term correction with possible triggers being the upswing in global COVID-19 cases, the inflation scare, US taper talks and geopolitical risks. But looking through the inevitable short-term noise, the combination of improving global growth and earnings helped by more fiscal stimulus, vaccines and ‘still low’ interest rates looks good for shares over the next 12 months.
Unlisted Commercial Propertymay still see some weakness in retail and office returns, but industrial is likely to be strong. Unlisted Infrastructure is expected to see solid returns.
Australian home prices look likely to rise 15-20% this year before slowing to around 5% next year, boosted by ultra-low mortgage rates, economic recovery and FOMO (fear of missing out). You would, however, expect a progressive slowing in the pace of gains as poor affordability impacts, government home buyer incentives are cut back, fixed mortgage rates rise, macro prudential tightening kicks in and immigration remains down relative to normal. The lockdowns have increased short term uncertainty as well.
Cash and Bank Deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%. Shane Oliver of AMP suggests that the RBA won’t start raising rates until 2023, although given recent forecasts he has also warned that this may come forward to 2022.
The enclosed information is current as of 23/07/2021 and is kindly provided by AMP and Vanguard. The information contained in this email is of a general nature only and your personal financial position, objectives or needs have not been considered. Please ensure you have the necessary financial, tax and legal advice before acting on this information. Do not rely upon it when making financial decisions.