Monthly economic update with MLC, March 2021

Funds Management

by Clive Tompkins

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MLC Asset Management Senior Economist Bob Cunneen discusses factors supporting the global share market's 3.5% rise and the Australian share market's 2.3% gain.

Global shares delivered a robust 3.5% positive return for March, and there were a couple of key factors supporting global share markets. Firstly, central banks gave guidance that low interest rates would continue. So, we saw these signals from the Federal Reserve, the European Central Bank and the Reserve Bank that they would maintain low interest rates for the next couple of years. We also saw some encouraging signs on the vaccination program, particularly in the United States and Britain. However, it's still pretty problematic in Europe and Brazil. The third factor was some positive signs on the global economy. In particular, the United States and the Chinese economies are doing particularly well. So, being the two largest economies, there is hope that they will lift the rest of the world in 2021.

The global economy is currently delivering a very mixed performance. Clearly, China and the United States are leading the recovery. However, in the case of Europe, it still remains a concern, with the rise in new infection cases and the extension of lockdowns, in particular in Germany, France and Italy for the next month. So, the European recovery looks like it's being delayed. However, markets have looked beyond that. So, if we look at March itself, European shares actually led the charge with a +8% return for March. By comparison, Wall Street only delivered a 4% return. So, essentially, Europe is playing catch up to the United States, given the very robust performance we had on Wall Street in 2020.

Australian shares delivered a solid return, but didn't keep up the pace with the global share market. So, Australian shares delivered around 2.3% for March, and that was led by a couple of key sectors. In particular, consumer discretionary, utilities, and the communication sector delivered a solid +6% return in March. So, they were driven by hopes that the consumer is in a much better place, with lower loan deferrals, higher consumer sentiment, and strong gains in employment. Against this, the resources sector disappointed, with a -4% return, and that's largely due to the fact that commodity price rally stalled in March. We also saw the information technology sector deliver a negative, -3% return, but you have to bear in mind that the information technology sector has been up 85% over the past year, so this is really a consolidation.

The Australian economy seems to be travelling particularly well currently. So, the February data for employment showed a 90,000 gain in jobs and the unemployment rate coming down to 5.8%. We've also seen, in terms of the leading indicators, such as car sales, job ads in particular, that the Australian economy has considerable momentum. So, it looks like 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.


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