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Archinomics Weekly - Monday 2nd August 2021

one month ago

the
MARKETS

Equities

Global equity market sentiment ended the week on a downbeat note, despite the US Federal Reserve’s (Fed’s) cooling of tapering expectations. In the US, the Dow Jones, S&P 500 and Nasdaq Composite all closed lower. European equities were mixed amid global growth fears. The Asia-Pacific region fared worse. A crackdown by Beijing on technology and education companies sent regional shares tumbling, with the Hang Seng Index closing at -5.0%.

Bonds

The yield on the benchmark 10-year US Treasury bond ended lower, reflecting downward growth and inflation surprises (bond prices and yields move in opposite directions), although the statement from the Fed meeting was viewed as hawkish on balance. Eurozone bond yields also declined, due to ongoing concerns about the spread of Covid-19 and doubts about reflation and wider economic recovery. Peripheral market yields generally followed core markets, falling after the European Central Bank suggested inflation could temporarily overshoot its 2% target.

Currencies

The US dollar ended lower, as Q2 US GDP data missed expectations. This declining trend particularly benefited the Swiss franc and Japanese yen.

Commodities

Oil rose 3% on the week, posting a fourth monthly gain, with demand forecast to outstrip supply as vaccination programmes alleviate the impact of the Delta variant of Covid-19. China’s push to curb steel output and reduce pollution sent iron ore futures to a 3-month low.

Responsible investing

Global regulators moved in on corporate environmental, social and governance (ESG) ratings, which could bring formal oversight to a sector which channels trillions of dollars into ESG-labelled investment funds. The International Organization of Securities Commissions (IOSCO), grouping market regulators from the US, Europe and Asia, fears that a lack of transparency in ratings could cause confusion, leading to questions about relevance, reliability and greenwashing.

MACROECONOMIC
UPDATE

Q2 GDP data releases sent mixed signals, and markets assessed downside risks to demand from the Delta variant, as well as the consequences of supply bottlenecks.


In the US, private consumption surged 11.8% in the second quarter, yet bottlenecks held back production and inventories were a drag on growth. Comments from the July Fed meeting suggest it is moving closer to a decision on tapering.


The eurozone's economy grew by 2% in the second three months of the year, taking the region out of recession. GDP was stronger than expected, led by the periphery.

on the
RADAR

July Purchasing Managers’ Index (PMI) data for the manufacturing and services sectors will provide further insight into the health of economic recovery from the pandemic.


The US will report jobs data, the unemployment rate and non-farm payrolls, on Friday. Optimistic forecasts on both counts could be met with disappointment.

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