Market Update

Analyzing the accompanying table, one might initially assume it was a relatively tranquil week for equity markets. However, this conclusion would be far from accurate.
The week witnessed a tug of war between the prospects of economic reopening and recovery on one side, and concerns about inflation on the other. This dynamic made it an intense and draining week, with global equity markets ultimately finishing the week with little change.
Given the prevailing worries about inflation, the release of the minutes from the Federal Reserve's latest monetary policy meeting held our primary attention this week. We were searching for clues to gain insights into how these concerns might affect monetary policy and the trajectory of equity markets.
At a broad level, the message conveyed was that the US economy remains sufficiently distant from achieving its dual-mandate objectives (inflation and employment) to warrant no immediate changes in monetary policy. This patience on the part of the Fed is encouraging because history has shown that central banks, including the Fed, have a tendency to overestimate the future inflation outlook, resulting in premature tightening of monetary policy. However, there was a subtle hint that if the US economy continues its current robust recovery, policymakers may begin discussing the possibility of tightening monetary policy.
Data emerging from the UK this week underscored the strength of the economic rebound. Retail sales surged by 9.2% in April as lockdown restrictions were eased, and May's Purchasing Managers' Index (PMI) reached its highest levels since the inception of the series. The manufacturing PMI reading climbed to 66.1, up from April's 60.9, while the services PMI reading rose to 61.8 from 61 in April. Taken together, these indicators suggest that the UK's economic growth for 2021 could easily outpace the consensus forecast of 6% among economists.
Turning our gaze to the upcoming week, the most significant economic data releases will come from the US. These include the Chicago Fed Activity Index, housing data, consumer confidence figures, durable goods orders, weekly jobless data, and the Personal Consumption Expenditures (PCE), which is the Fed's preferred measure of inflation.