Market Commentary – July 14, 2021

Kevin Jock

14th July 2021

Exceptionally stronger than expected CPI data whipsawed Nasdaq to end the session unchanged whilst both the S&P500 and Dow Jones slipped 0.4% and 0.3% respectively. Despite the high inflation reading, muted price actioned seems to reflect investor sentiment has moved on. Focusing on prospective growth in light of the spread of the Delta variant and a possible slowdown in China’s rebound ahead of GDP data scheduled to release Thursday. Just last week, the PBOC had cut reserve requirement ratios spurring speculation as to why the central bank had started to ease monetary policy again.

In Europe, benchmarks eased off recent highs with the STOXX down only 0.1%. Asia opened mixed but continued the overnight theme of muted volatility. The S&P200 rose 0.2%, Hang Seng gapped down 0.1% and Nikkei up slightly at 0.1%.

Continuing civil in South Africa saw the Rand depreciate 2.1% on Tuesday. Following the jailing of Former President Jacob Zuma last week after he refused to attend an inquiry over corruption during his nine-year tenure, his supporters rampaged through the streets, ransacking and looting. Initial police response had been lethargic such that the military had to be subsequently called in after 19 deaths. Meanwhile, the U.S dollar index produced one of their best single day gains for a month. Gold stalled at $1,807 and bitcoin fell lower to settled at $32,000.

Crude oil rallied above $75 after the International Energy Agency commented yesterday that without an OPEC deal to raise production, the oil market will “significantly” tighten “as demand rebounds from last year’s COVID-induced plunge…with OECD industry stocks now well below historical averages”. The agency further noted that demand is forecasted to grow fast during the 3rd quarter of 2021 on the presumption a rapid reopening of global economies.


Figure 1 (Source: IS Prime) USDZAR Daily : Civil unrest in South Africa spurred risk-off sentiment in the Rand.

Headliner to Review

  • Monthly CPI out of the U.S. came in at 0.9% whilst 0.5% was expected and higher than previous months 0.6%. The unexpected data pulls into question whether the Federal Reserve’s assessment of transitory price pressures is correct. Comments from the report suggest figures are largely due to supply chain bottleneck, high demand post pandemic and year over year comparisons from last year when the economy was suffering from COVID-19.
  • RBNZ announced a reduction to monetary easing as it halts asset purchases from their LSAP programme by 23 July 2021 citing inflationary pressures see in housing.
  • CPI figures out of the UK also rose beyond consensus to 2.5% whilst 2.2% was expected. The largest contributor to the rise came via transport.

Headliner to Watch

  • BOC scheduled to deliberate on monetary policy today, with the cash rate set to remain unchanged. Though the central banks outlook will be of keen interest following the recent adjustments but the ECB last week and RBNZ today.
  • Fed Chair Powell is due to testing at the Semi-Annual Monetary Policy Report before the House Financial Services Committee today.
  • Labour market is expected to improve in Australia with the unemployment rate to remained unchanged at 5.1% whilst a further 19.7k Aussies to find jobs
  • Economic quarter growth in China expected to slow down to 8% from 18.3% as the economy normalised from the recovery out of the pandemic.

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Antony Tan
Kevin Joc