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Boyce Financial Services Pty Ltd as Trustee for
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APRIL 2021: Finance Update - Global Market

28 April 2021

Global Markets Continue to Rise

March provided a robust 3.5% return for global shares. This was supported by low interest rates continuing to be delivered by central banks, encouraging vaccination program outcomes in the US and Britain and positive economic indicators – particularly in the US and China.

  • The global recovery is continuing to gather momentum, with the IMF revising the global growth forecast again to 6%. However, Europe continues to experience a rise in new infection cases and an extension of lockdowns, which will delay European recovery.   
  • Access to vaccines is an issue, along with COVID “spikes”, but the overall environment of rising corporate earnings and low interest rate is fuelling markets.
  • Emerging markets were weak in March, rising only 0.1% in Australian dollar terms, but have outperformed developed market shares over the past 12 months.

Rally in Australian Equities Continues

Australian shares extended their rally through March, gaining 2.3%, but could not keep pace with global markets, which have been buoyed by the vaccine story. In Australia, very low levels of community transmission and the rollout of the vaccine program have delivered a boost to optimism, particularly for sectors directly linked to the re-opening of the economy.

Against this, the resources sector disappointed, largely due to the fact that the commodity price rally stalled in March.


Australian Economy Continues to Expand

The Australian economy expanded further in the final quarter of 2020, with GDP for the three months to 31 December coming in at 3.1% and easily beating analysts’ expectations of 2.5% growth.

  • Household consumption, which accounts for around 60% of GDP, rose 4.3% over the period; much of which was driven by a spike in spending on services such as hotels, cafes and restaurants as coronavirus-related restrictions eased.
  • A turnaround in private investment also contributed to the outcome, with rises in both business and housing investment; the latter benefiting from the Federal Government’s HomeBuilder initiative.​​
  • February data for employment showed a 90,000 gain in jobs and the unemployment rate coming down to 5.8%. The leading indicators, such as car sales, and job ads in particular, show that the Australian economy has considerable momentum.

Predictions are that the Australian economy is going to deliver +4% growth in 2021, which is a much better performance than the -2.5% negative growth that we had in 2020.


Fixed Interest - Bond Yields Continue to Rise

Rising bond yields are a sign of improving economic data, but also reflect the market’s concern about inflation. The speed and scale of stimulus by central banks has been immense and there are some concerns about governments being able to responsibly withdraw or scale back stimulus.

  • The RBA concluded its March meeting by saying that current monetary policy settings are continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets.
  • The Bank also reaffirmed that it won’t increase the cash rate target until actual inflation is sustainably within its 2-3% target range. For this to occur, wages growth would have to be materially higher than it is currently, which would require significant gains in employment and a return to a tight labour market. Officials don’t expect these conditions to be met until 2024 at the earliest. [Note: the RBA maintained its current policy settings following its early April board meeting.]
  • The RBA’s decision to increase its purchases of longer-term government bonds had been anticipated. Although recent data has been better than expected, it is expected that the cash rate will remain low for an extended period. In the meantime, a key watch point for the RBA will be how businesses and consumers react to the tapering of some of the Federal Government’s support programs.


Looking Ahead


Vaccine prospects are likely to make 2021 a year of global economic recovery. While markets have priced in a fair amount of the good news, more gains seem possible as corporate profits rebound and central banks maintain accommodative monetary policies.

The post-vaccine economic recovery should favour undervalued cyclical value names over expensive technology and growth stocks and the latest (USD1.9 trillion) US stimulus package may strengthen this case.

In the currency space, the USD is likely to weaken amid the global economic recovery due to its counter-cyclical behaviour, which has historically seen it decline in the recovery phase. Economically sensitive ‘commodity currencies’ like the Australian, New Zealand and Canadian dollars could continue to strengthen.



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