Market Update

If there's one point worth emphasizing repeatedly, it's that any interest rate hike is still many years away.
Our perspective, which diverges from the consensus among economists and financial journalists, is grounded in a set of undeniable facts. Firstly, the anticipated surge in year-on-year inflation is temporary, driven by the base effect from last year's distorted oil prices, and will soon dissipate. Secondly, we are in the midst of an economic recovery, not robust economic growth. With unemployment levels significantly higher than before the onset of the pandemic, this nascent economic recovery requires ongoing support from both fiscal and monetary policies.
Despite a shaky start to the week following contradictory comments from US Treasury Secretary and former Fed Chair Janet Yellen about the risk of an overheating economy, global equity markets rebounded, finishing the week on a positive note, as indicated in the accompanying table.
This turnaround was facilitated by statements from the Bank of England (BoE) and US economic data, both of which aligned with our long-standing views.
The BoE opted to keep UK interest rates unchanged and emphasized that policymakers were in no hurry to tighten monetary policy, despite upgrading their forecasts for both GDP growth (from 5% to 7.25% for 2021) and inflation (from 2% to 2.5%).
Notably, the decision to maintain the existing bond purchase program (commonly known as QE or quantitative easing) was not unanimous, with an 8-1 vote among policymakers. The BoE's chief economist, Andy Haldane, dissented. However, as he is stepping down next month, some may speculate that he was simply seeking to garner attention for himself and boost his speaking fees for post-retirement engagements.
Regarding this week's economic data, all signs were positive except for US employment figures. Employment growth in April reached only 266,000, falling significantly short of economists' expectations of a 1 million gain. This serves as a clear indication that complacency had set in regarding the strength of the economic recovery. Furthermore, the previous month's employment growth was revised downward by 146,000, pushing the US unemployment rate up to 6.1%.
While this situation is undoubtedly concerning for unemployed Americans, with over 8.2 million more Americans jobless than in February 2020, it underscores the necessity for ongoing economic stimulus and low-interest rates, which bodes well for global equity markets.
Looking ahead to the upcoming week, our primary focus will be the market's response to the US Consumer Price Index (CPI) inflation reading. Headline inflation could potentially match levels observed a decade ago, hovering around 3.5%. However, the more significant core inflation level (which excludes volatile items like food and energy) is expected to remain relatively close to the Fed's 2% target.
Additionally, we have Q1 GDP data for the UK, along with industrial production figures for the US, UK, and Eurozone, as well as US retail sales data.