Market Update

The past week didn't paint a pretty picture for global equity markets, as the dominant topic of discussion revolved around concerns of potential hyperinflation. This unease stemmed from robust US economic data and comments made by a Bank of England (BoE) policymaker.
Several economic indicators contributed to these inflation fears. US durable goods orders and jobless claims exceeded economists' expectations. Furthermore, the Fed's favored gauge of inflation, the PCE (personal consumption expenditure) index, climbed by 0.3% in January, pushing both headline and core PCE inflation to 1.5%.
In contrast to his BoE colleagues, Andy Haldane, the BoE's chief economist, voiced his belief that inflation might surge significantly as the economy reopens, citing a "tangible risk" of challenging inflation control in the UK.
As a result, financial markets are beginning to anticipate interest rate hikes in both the US and the UK over the next year or so.
However, despite our decades of investment experience, our current perspective remains unchanged. While substantial economic growth historically led to inflation, we believe the dynamics this time will differ significantly. The remarkable GDP growth anticipated over the coming year simply reverses the sharp downturn caused by coronavirus lockdowns. Consequently, we expect underlying inflation pressures to remain subdued.
Nonetheless, as we've previously mentioned, headline inflation is expected to surge in the coming months due to factors like distorted oil prices and the reversal of VAT cuts granted to the hospitality sector. These pressures, however, are likely to be temporary, and we don't anticipate a sustained inflation rate exceeding the 2% target.
Moreover, while we are optimistic about the global economic recovery, we anticipate that the labor market may bear scars for years to come, similar to the aftermath of the 2008/9 global financial crisis. Consequently, we believe that demand and inflation pressures will remain sufficiently contained, requiring a considerable amount of time before central banks even consider raising interest rates. Therefore, we anticipate that the recent weakness in the equity markets will likely be swiftly reversed.
Looking ahead to the coming week, our attention will be on Rishi Sunak, the UK Chancellor of the Exchequer, as he presents his Budget Statement on Wednesday, March 3, 2021. In terms of data, we are particularly interested in the weekly US jobless claims data on Thursday, March 4, 2021, and the US employment data, including non-farm payrolls, the unemployment rate, participation rate, and average earnings, to be released on Friday. Additionally, other noteworthy data includes US ISM (Institute for Supply Management) figures, Eurozone CPI inflation data, and Chinese PMI (Purchasing Managers' Index).