May 2021 Global Market Commentary
As the U.S. surpasses a milestone of 50% of adults vaccinated against COVID-19 and many lockdown restrictions being lifted in Europe, markets have shifted focus to questions around inflation, growth, and central bank policy.
Inflation readings in the U.S., as measured by the Core PCE, were at their highest levels in decades, though officials in the US Treasury and Federal Reserve have reiterated that no long term concerns around inflation exist.
In Europe, vaccination rate amongst adults have picked up versus initial rates, boosting growth expectations in the coming year, and causing European equity indices to rally accordingly.
Economic data and corporate earnings have shown a clear pick-up in activity over the past few weeks. Still, equity markets were tepid, reaching all time highs but finding resistance at the high end of trading ranges.
Some Federal Reserve officials have expressed interest in discussing “tapering” at upcoming FOMC meetings, implying that the rate at which the Fed is injecting money into the economy should be moderated due to the recovery and creeping inflation levels.
The interest rate market is not pricing in a full hike through the first quarter of 2023, so we’ll have to take a closer look at the inflation debate, namely whether higher levels are passing or persistent, and if the latter, whether the Central Banks will have to intervene sooner than expected to mitigate rising prices.