Sharemarkets solid despite Delta

• Cases of COVID-19, particularly the more contagious Delta variant, continued to surge in July. Despite this, most developed share markets delivered positive returns. International shares delivered 4.0% unhedged and 1.8% hedged due to a weaker AUD.
• Emerging market shares were rattled by the weak performance of many Chinese stocks following the announcement of tighter regulations for tech stocks, property companies and private education by Chinese authorities. International emerging market shares finished the month down -4.7% (unhedged) as a result.
• Australian shares delivered slightly more subdued returns of 1.1%, as investors were discouraged about the path to recovery following a spike in new COVID-19 cases.

Postitive growth outlook remains

• While the pace eased the global economy continued to recover in July. The US earnings season was very strong with consensus that earnings per share (EPS) will remain robust on the back of continued economic reopening. US inflation surprised on the upside for the fourth consecutive month.
• In Australia the unemployment rate fell to 4.9% in June, below the Reserve Bank of Australia’s (RBA) forecasts. The current lockdowns may see unemployment rise.
• Despite solid growth and rising equity markets, bond yields continued to decline possibly reflecting concerns regarding the rapid spread of the Delta variant.
• At this stage developed market central banks, including the RBA, appear to be looking through the rising COVID-19 case numbers given the effectiveness of vaccines to reduce hospitalisation and death rates.While signals are that monetary policy will remain very supportive, keeping borrowing rates for businesses and households very low, the program of bond buying appears more likely to taper off.