Equity markets rallied further, on hints from the US Federal Reserve chairman that pandemic-era monetary stimulus could be dialled back by year end. This week brings PMI data from across the globe, likely to hold recent highs, while US employment data should demonstrate continued labour market strength.
Equity markets were rattled by fears of diminishing central bank support and increasing regulatory pressure, while bond markets remained calm. This week brings the Jackson Hole Symposium, where the world’s central bankers will discuss the continuing pathway out of the global pandemic.
Early in 2021 financial markets switched focus from the benefits of reflation, or recovery from the pandemic, to inflation and its potential to damage asset prices. That focus could be set to flip again, this time from inflation to a possible check on recovery growth. And the culprit? The Delta variant of Covid-19.
Equity markets were rattled by growth fears, as US Q2 GDP missed forecasts, and China’s tech sector was hit by renewed regulatory pressure. This week’s PMI reports should indicate evolving growth expectations in the world’s major economies.
US Treasury markets reacted calmly, as the June CPI inflation data beat expectations to reach a thirteen year high. This week’s ECB meeting should shed light on average inflation targeting plans, while Flash PMI data will indicate the current state of global business sentiment.
Government bonds rallied and yields fell sharply, as the reflation trade lost steam and markets sensed the peak in GDP growth acceleration. This week brings the start of Q2 reporting season in the US, which could tell a similar story on recovery earnings growth.