Quarter in Review Q2 2021

Key themes

  • US infrastructure spending is proposed
  • EU recovery fund to help peripheral countries
  • US inflation hits multi-decade high

Markets snapshot

  • The MSCI AC World equity benchmark rose 7.2% (6.6% in euro terms).
  • The US rose 8.9% (7.9% in euro terms), as growth was strong on the back of large-scale fiscal and monetary stimulus measures.
  • Europe gained 7.1% (7.3% in euro terms), as the outlook for the economy improved as more people were vaccinated.
  • Japan lagged, rising 0.2% (-1.1% in euro terms), due to sluggish growth as restrictions were introduced to combat a new rise in Covid-19 case numbers.
  • Similarly, emerging-market equities underperformed, rising 3.9% (4.2% in euro terms) due to the slow rollout of vaccines and rising infections across a number of countries.
  • The ICE BofA Merrill Lynch Eurozone > 5-year sovereign bond benchmark fell -0.9%, while the German 10-year yield rose to -0.21%.
  • European investment-grade corporate bonds rose 0.3%, while global high-yield credit rose 2.2%. Yields and spreads in both investment-grade and high-yield corporates declined after the ongoing improvement in growth and investors’ ongoing search for yield in a low-yield environment.
  • The euro rose against the US dollar to 1.1849. The euro was initially strong, rising to a peak of 1.2266 in mid-May on the improving growth outlook in Europe and uncertainty when it was thought that the ECB might tighten policy.
  • Commodities rose 15.7% due to their sensitivity to global growth expectations. With growth forecasts firm, the demand outlook for commodities was positive and pushed prices higher. The oil price also continued to rise, with West Texas Intermediate increasing 24.2% as OPEC+ discipline remained firm.
  • Gold rose 3.5% on a slightly weaker US dollar and declining US real yields following their rise in the first quarter.

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