Monthly economic update with MLC, April 2021

Funds Management

by Clive Tompkins

MLC Asset Management Senior Economist Bob Cunneen discusses global shares' and the Australian market's 3.7% gain in April.

Global shares delivered a very strong +3.7% gain in April, and there were a few key positive factors behind this strong performance. Firstly, Wall Street made record highs. And, in particular, what was supporting Wall Street was the +45% annual gain in corporate profits. The second factor was guidance by key central banks, such as the American Federal Reserve and the European Central Bank, that they would keep interest rates low for the next couple of years. The third factor was there has been some progress with virus containment, as well as vaccinations, in the United States particularly, as well as Europe. So, global markets took these three factors as the key support for global share returns in April.

Presently, the global economy is delivering a multi-speed performance, where some countries are doing exceptionally well and some countries are clearly struggling, still, to contain the virus. The positives are China and the United States, which have led this recovery. So, for China, we've seen very strong annual economic growth of +18% in the first quarter of 2021, and that has been led by very robust industrial production and retail spending. A similar story across the Pacific with the United States, where their economy has recovered quite solidly, and we're seeing consumer spending and housing construction do particularly well. Against this, Europe is still in a recession. So, because of the lockdowns that have been in place since November of last year, the European economy contracted in the first quarter of 2021. But we also note that Brazil and India are struggling. In particular, the rate of new infection cases is a particular threat to their health systems, as well as economic activity, currently.

Australian shares also delivered a very strong performance, with a +3.7% gain in April. Now, there are a couple of key sectors that did particularly well. Information technology delivered a +9% gain in April, and that was largely on the back of the strong performance on Wall Street. The Australian resources sector also delivered a +5% gain for April, and this was on the back of extraordinary price rises for copper, in terms of a +13% rise in April, as well as iron ore, which is up nearly 20% to about $185 per tonne. Against this, some sectors did disappoint. So, if we're looking at Consumer Staples, they were down around 2.5%, and we had subdued results from Woolworths (ASX:WOW), which was the key driver of this disappointment. We also saw negative returns out of the Energy sector, and this largely reflects the strong rebound that we've had over the last six months. There's been a bit of a consolidation for the Energy sector.

The Australian economy appears to be doing reasonably well. What we're seeing in terms of the business and consumer sentiment surveys is particularly encouraging. They're at 10- to 12-year highs. We're also seeing very strong results in terms of car sales, as well as employment gains. So, if we looked at March itself, we had an extra 70,000 jobs created, and the unemployment rate came down to 5.6%, which is the lowest level in the past year. So, the Australian economy is doing reasonably well and looks to have great prospects for 2021.


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