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Weekly Commentary - 27 July 2021

Weekly Market Commentary



Despite a strong risk-off tone on Monday, global equities rose to all-time highs by the end of last week


Despite a risk-off bout on Monday of last week, markets bounced during the week, driven by strong corporate earnings. Both US and European indices managed to hit fresh highs, despite the cautious tone in markets due to the rapid rise of the Delta variant.


This week’s focus will be on the US Federal Reserve meeting and how it balance higher inflation with higher Delta variant cases


We have a wide collection of data releases ahead of us this week, including the first Q2 GDP estimates for the US and other major economies. Thursday’s US GDP release may be symbolically important as it is expected to show that real GDP has now surpassed the pre-pandemic peak. Given the US is still being impacted by COVID-19 and the Delta variant and supply chains globally remain troublesome, this is an impressive feat. This recovery has been supported by the coordinated policy of governments and central banks and has been far quicker than post the financial crisis, for example. The euro area is also releasing GDP numbers on Friday, but is expected to still be some way behind its pre-crisis peak.

This week’s main event will be the US Federal Reserve (Fed) meeting, with the central bank having to tread a careful path. Since the last meeting, US CPI has beaten expectations, which may suggest (depending on the inflation camp one is in) either a higher level of transitory inflation, a longer period of transitory inflation or evidence of more sustained pressures. At the same time, sentiment has been rocked by the rapid spread of the Delta variant which complicates an aggressive timeline for the tapering of quantitative easing. How Fed Chair Jerome Powell weighs these risks and guides to the future for Fed asset purchases will be critical for summer sentiment.


China’s educational technology crackdown has driven fears of a wider push against foreign investment into China’s strategically important sectors


An event that has gone under the radar is the crackdown by the Chinese government on foreign investment into educational technology companies. The new rules effectively stop companies who teach the school curriculum from raising capital or making profits. This has helped catalyse further weakness in Chinese markets due to two factors: firstly, this effectively closes the growing Chinese education market from global investors and secondly, it reminds investors that the Chinese government is willing to prioritise domestic concerns at the expense of global investors. Given the importance of China’s market and economy, should this risk broaden from just educational technology to a wider push against foreign investment in strategically important Chinese companies, we would expect contagion into global markets.


The Week In Numbers




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