15 June 2021
Global stocks on the up
Between improving economic conditions and some central bank moves in Europe, global stocks enjoyed a week of good performance in general last week. These positives proved enough to counter the continued fears around inflationary danger – for the moment – alongside the news of a potential minimum global tax rate.
This proposed move surfaced from the G7 meetings, in which finance leaders from the present economies agreed to a global minimum tax rate of 15%, and is part of a range of measures to bring the global tax regime more in line with the world many companies now operate in. While it could lead to multinationals paying more tax, there will need to be many more discussions before the proposal becomes reality.
Across the pond, the Bureau of Labor Statistics’ Consumer Price Index (CPI) showed a 5% increase in May 2021 in the figures released on Thursday, compared with the same figures a year ago – making it the highest rise in almost 13 years. Some of the inflation can be explained by a surge in used car prices, which is up almost 30% year-on-year. The Core CPI, which doesn’t include more volatile sectors such as food and energy, also rose 3.8% in the same period, which was the highest rise since 1992. The S&P 500 still closed the day at a record high.
Although US Federal Reserve officials have helped to prevent inflationary fears taking over by describing the CPI figures as ‘transitory’, all eyes will be on the Federal Open Market Committee (FOMC) as they meet this week for clues about the direction in which the US economy is heading.
“At the March FOMC, the Fed lifted its projection for PCE [personal consumption expenditure] inflation at the end-2021 from 1.8% to 2.4%. However, another substantial revision towards 3% would seem merited, in our opinion. We believe that it remains too early to expect a change in rhetoric at the Federal Reserve meeting this week, but we may only be one or two decent job prints away from taper discussions coming to the fore,” said Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.
Days numbered for some support?
Low interest rates and other forms of support has been how central banks such as the Federal Reserve kept asset prices stable throughout the pandemic, but with worldwide economies now improving, most of them are signalling that they may be tapering down support in the future. It is likely that this will negatively affect some asset prices but will help deal with rising inflation. Dowding added:
“We continue to look for a debate to kick off in earnest at the August Jackson Hole meeting and a taper to be announced in September.”
Looking back to the UK and EU, the STOXX Europe 600 Index hit a record high on Friday, following a European Central Bank (ECB) Governing Council meeting which decided to keep rates at their current lows, and continue to conduct net asset purchases under the pandemic emergency purchase programme and provide liquidity through its refinancing operations.
The FTSE 100 also recovered from a slight wobble in the midweek to finish on Friday above its closing position the week before. Positive figures for UK shareholders were also released from the Office for National Statistics (ONS), which reported GDP growth for April hit 2.3% – the fastest rate of growth since July 2020.