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Weekly Commentary 15 June 2021

Weekly Market Commentary

US Consumer Price Index headline and core inflation came in higher than market expectations last week


Despite a higher than expected US Consumer Price Index (CPI) print last week, markets adopted an ‘it could have been worse’ position and, supported by continued faith in the US Federal Reserve’s (Fed) low interest rate narrative, equities rose. Lower inflation expectations over the week allowed US technology to outperform, with the banking sector underperforming after a strong run.


Despite this, inflation expectations fell, driving a rally in technology shares


Due to the surge in new cases caused by the Delta variant of COVID-19, the UK government is expected to announce today that the full easing in restrictions originally tabled for 21 June will be postponed by four weeks. There are reports that the date could be brought forward if hospitalisation data remains under control. The delay is to give time to the UK vaccination programme ahead of a full reopening of social contact. At a global level, new cases continue to flatten and there was a suggestion from the German health minister that the country may look to ease mask restrictions shortly. This comes as the UK leapfrogs other major European nations to have one of the highest weekly infection rates per 10,000 population.


All eyes will be on the US Federal Reserve meeting on Wednesday to see how the bank reacts to the pickup in prices


This week’s macroeconomic highlight will be the US Federal Reserve meeting on Wednesday, with investors looking for any reaction to last week’s CPI release. Alongside the latest statement from the Federal Open Market Committee (FOMC), we will receive the latest economic projections and the ‘dot plot’ showing interest rate expectations from the committee’s members. The focus will be on the 2023 ‘dot’ and whether the latest inflation numbers are enough to lead to expectations of ‘lift off’ amongst the median member. The market will also be looking for any hints as to when the central bank will start talking about tapering asset purchases.

With the Fed having done such a fine job in anchoring interest rate expectations close to zero, it is unlikely that they will choose this week to deviate suddenly from this path. This is particularly true as the Fed appears more concerned about the path of US employment data than inflation, which it views as skewed by the reopening distortions. Whether the FOMC will imply a 2023 rate hike through the dot plot will be a close call and is probably the big question mark for investors on Wednesday. 


SOURCE: Brooks MacDonald


The Week In Numbers




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