Week ending 9th July 2021.

Despite the fact that, as you can see from the accompanying table, most of the major global equities ended the week broadly flat, it was a very volatile week.

Equity markets had been starting to leave the coronavirus outbreak in the rear-view mirror, but the rapid spread of the Delta coronavirus variant has brought it back into view simply because it coincides with recent Fed comments that it is time to start thinking about tapering monetary support.

However, we believe that this is a typical run-of-the-mill, knee-jerk reaction to a new uncertainty – as we have previously stated, evidence has shown us time and again that while equity markets hate periods of uncertainty, they can deal with any eventuality.  As such, we don’t see this week’s volatility as the start of a more sinister market correction.

Furthermore, while we appreciate that this current resurgence in coronavirus cases around the world may delay some economic reopenings and prolong the various supply chains and bottleneck issues we are currently experiencing, there is an obvious silver lining:  it should clearly highlight to central bank policymakers that there is a risk to removing their monetary support too quickly.

In fact, this helps to cement our view that interest rates are unlikely to rise anytime soon – especially given that this week’s release of the minutes from the last Fed monetary policy meeting, held on 16 June 2021, showed that while policymakers had become much more hawkish, they also want to see further economic progress made (especially with employment), before they start to remove stimulus.

As such, while the economic recovery may slow slightly, we believe it is wrong to assume it has run its course.

Looking ahead to this week coming, we have plenty of economic data releases to analyse. Of main interest will be:  US & UK CPI & PPI inflation; UK employment; the Empire State manufacturing survey; US, Eurozone & Chinese industrial production; US & Chinese retail sales; the University of Michigan consumer sentiment index; and Chinese Q2 GDP.

Investment Management Team

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