Market Update

The week saw a marginal dip in global stock markets due to rising apprehensions that surging COVID-19 cases might dampen economic rejuvenation. This sentiment was underscored by the unexpected drop in the University of Michigan's consumer sentiment index for July, which stood at 80.8, down from 85.5 in June and below the anticipated 86.5.
However, we opine that if the US economy grows at a somewhat subdued rate, it can actually work in favor of maintaining lower US interest rates. Supporting this outlook, the Fed Chair, Jay Powell, recently mentioned that it's premature to curtail the monetary backing from the US central bank. This statement came even in the face of the week's elevated CPI inflation figures, emphasizing the need for the US job market to make "noteworthy further advancements."
Shifting the spotlight to the upcoming week, significant attention will be on Europe, specifically on the ECB monetary policy meeting scheduled for Thursday (22 July 2021).
The ECB, which primarily aims to uphold steady inflation, recently modified its inflation target from the ambiguous "below, but near, 2%" to a more symmetric goal. This permits short stints of over 2% CPI inflation to be disregarded. While this seems in line with the Fed's recent adaptations, the ECB clarified that it won't emulate the Fed's approach of allowing inflation to overshoot to compensate for previous sub-target performances.
Even though this revision seems promising, it doesn't necessarily predict a sudden spike in inflation beyond 2%. Post the 2008/9 financial crisis, the Eurozone's CPI has been at an average of just 1.3%, while its core CPI, excluding fluctuating components like food and energy, is at 1.1%. Notably, this week witnessed a sharp drop in oil prices due to speculations of decelerating economic growth and potential agreements between Saudi Arabia and UAE to boost OPEC supply. This plunge in oil prices is likely to alleviate some inflationary strains.
In our perspective, the ECB's alteration effectively communicates to the financial world that a withdrawal of the Eurozone’s super-accommodative monetary stance is not on the immediate horizon – a scenario that bodes well for the stock markets.
Other key data shared this week encompassed: UK's retail figures; PMI data from the US, UK, Eurozone, and Japan; along with US real estate statistics.