Market Review - June 2021

July 9, 2021

By Jan Faure

Markets mixed in June as US Fed signals policy change.

Global markets put in a mixed performance during June. Asian markets were weaker while European equities made modest gains. US markets gained as technology stocks came back into favour as inflation concerns eased.

In a highly significant monetary policy statement at the conclusion its June meeting, the US Federal Reserve signaled that it expects to hike interest rates twice in 2023. This is sooner than most had expected and is the first hawkish policy turn since the Covid-19 pandemic unleashed massive stimulus from central bankers. Fed Chair Jerome Powell also said the central bank would begin a discussion about scaling back its monthly bond purchases.

The Fed continues to insist that it expects US inflation to be transitory due to last year’s low base. Central bankers have expressed the view that this year’s inflation spike is led by a combination of pent up consumer demand and supply chain shocks (or bottlenecks) due to the Covid-19 pandemic, and believe this to be temporary.

Global equities initially sold off after the Fed announcement but that quickly reversed. Despite markets wanting to revel in a low interest rate world for longer, the sooner-than-expected rate hikes can be taken to imply that the US economy is in better shape than at the Fed’s previous policy meeting. Adding to positivity was US core PCE price index data, the Federal Reserve’s favoured inflation gauge, that came in lower than expected for its May reading. This calmed some nerves around runaway inflation and was positive for equity markets.  

The Fed’s announcement over future interest rates saw the dollar strengthen against most currencies.

US Dollar Index – June 2021

Gold slumped, dropping from approximately $1900 an ounce at the beginning of June to $1770 at the end of the month. The sweat spot for gold is a negative real yield environment because gold is a zero yielding asset competing in a world of income yielding assets (in the form of interest, dividends and rent). When interest rates rise, the opportunity cost of holding gold also rises making it a less attractive investment proposition.

In the final week of June US equities were bolstered by an agreement in Washington on a roughly $1 trillion infrastructure plan, which includes around $579 billion in new spending on roads, bridges, rail and other infrastructure. The breakthrough agreement was welcome after weeks of strained negotiations between the Biden administration and Republican senators.

GLOBALINDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow Jones Indices
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