Global financial markets again reached record all-time highs in June due to encouraging consumer confidence data, more US spending stimulus plans, and higher economic growth hopes. Still, concerns about rising inflation and future tax increases persisted. In addition, investors have been pleased by the success achieved in the fight against the pandemic, as daily status statistics have continued to decline. However, the situation in other parts of the world, notably in Asia and the Pacific, remained more worrisome as the emergence of the delta coronavirus variant has resulted in lockdowns.

The S&P/TSX Total Return Index was up 2.5% in June as Canada’s primary market index concluded its greatest first semester in many years while posting a fifth consecutive month of gains.

Despite an 11.3% spike in crude oil prices, the Canadian loonie fell 2.6% against the US greenback. The broadly stronger US dollar gained roughly 2.6% against a basket of currencies this month, its most significant monthly gain since March, due primarily to the Federal Reserve’s hawkish change in tone.

During a spring spike of COVID-19 cases across the country, Canada’s economy fell less than predicted, extending its streak of unexpected strength. GDP fell by 0.3 percent in April, according to Statistics Canada figures. Economists had predicted a 0.8 percent decline in April. Despite the decline, the statistics show how effectively Canada’s economy withstood waves of lockdowns to restrict the virus’s spread. This tenacity is likely to sustain a robust comeback in the second half of this year.

According to the Bank of Canada, the Canadian economy will begin a strong recovery this summer, powered by consumer confidence, as vaccinations progress more quickly and provincial governments relax restrictions. In addition, they expect the inflation rate to be about 3 percent this summer due to rising gas and oil prices and comparing current prices to the low levels they were at last year.

Furthermore, the central bank held its benchmark interest rate at a record low of 0.25 percent. It kept its current pace of bond purchases unchanged. Governor Tiff Macklem reiterated his commitment not to raise interest rates until the harm caused by the COVID-19 had been adequately addressed.

The S&P 500 Total Return Index was up 2.3% in June, marking the index’s second-best first half in 23 years. Only 2019’s 17.4 percent first-half increase was better.

The fast pace of COVID-19 vaccinations, significant government backing, and more favorable economic indicators have spurred expectations for healthy economic growth and high corporate earnings growth this year. These tailwinds have propelled stocks and kept markets at all-time highs. Notwithstanding, some of the economy’s serious risks include a pandemic ramping up resurgence and rising inflation spiraling out of control. So far, the Fed has persuaded investors that the uptick in inflation in Q2 is primarily due to transitory price spikes.

On the economic front, the US economy increased by 6.4 percent in the first quarter of 2021, with US consumers driving most of the growth. This trend is expected to continue throughout the summer as additional vaccinations are delivered and COVID-19 cases continue to drop. Meanwhile, the economy added 559,000 jobs in May, up from a slow gain in April, lowering the unemployment rate to 5.8 percent from 6.1 percent; it is the lowest rate since the pandemic emerged. In addition, the Conference Board Consumer Confidence index rose to 127.3 in June, reaching its highest level in more than a year.

The Fed kept its interest rate near zero and its monthly asset purchases at $120 billion. However, the Fed officials turned hawkish by suggesting that rates would be raised in 2023 rather than 2024 and that asset purchases will be reduced later this year or early next year. In addition, the Fed increased its inflation forecast for the year to 3.4 percent, up from 2.4 percent previously.

The MSCI ACWI Ex-US Total Return Index was down -0.5% in June as the more dangerous coronavirus delta variant spread across Asia, Australia, and some parts of Europe.

As a result of the spread of that COVID-19 variant, countries across the Asia-Pacific region and parts of Europe have imposed strict lockdowns and quarantine restrictions. However, UK Prime Minister Johnson has deferred plans to reopen by planning to remove COVID-19 restrictions in a month.

Following declarations from many governments in the previous months, The EU Commission has funded approximately 1 trillion Euros Next Generation EU fund for the first three national recovery plans, named Spain, Portugal, and Italy.

Christine Lagarde, ECB President, encouraged policymakers to maintain budgetary purse strings free, stressing that an early halt to stimulus measures may undermine a fledgling recovery. Lagarde also said continuous support is required to prevent the pandemic from causing an economic downturn.

The ECB maintained its core policy measures and that it would continue to acquire emergency bonds at a faster pace in the coming quarter, even though the central bank’s revised projections called for higher inflation and economic growth rates. In a news briefing, ECB President Christine Lagarde said that inflation would rise this year before slowing in 2022 as transitory causes fade.

Policymakers at the Bank of England voted unanimously to retain the benchmark interest rate at 0.1 percent and by a majority to extend the asset purchase program until the end of the year. According to the bank, economic growth would be substantial, and inflation might reach 3%, but be transitory.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This newsletter was written, designed, and produced by Factor-Based Inc. for the benefit of Bryan Muir who is a Portfolio Manager for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice.  Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned.  The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.  iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.