The trader works with Plexiglas on the floor of the New York Stock Exchange (NYSE), New York, New York, USA, July 28, 2021.
Andrew Kelly |: Reuters:
LONDON – Markets are no longer afraid of inflation and are now focused on delivering the delta Covid-19, according to HSBC Wealth Management.
In a post on Thursday, Xian Chan, director general of investment, said that after investor concerns about whether the US Federal Reserve might have to tighten monetary policy, markets have apparently become accustomed to the concept.
Xian said that although inflation in US consumer prices remained high at 5.4% per annum in July, the 10-year yield of the US Treasury Department fell, indicating that markets “have nothing to fear but inflation.”
“There is usually a direct link between bond yields and inflationary expectations,” he said. If inflation is expected to be higher, bond yields increase, reflecting the likelihood of higher interest rates. But it is interesting that the yield on the bonds has decreased since the peak in April. ” Chan said.
In Europe, as of Friday morning, the 10-year treasury yield fell again to 1.3405%, up from 1.7% in March. HSBC forecasts that it will fall to 1% by the end of the year.
At the same time, the S&P 500 set a new record on Thursday, Xia said, noting that these market movements are taking place, although inflation expectations remain high.
The current survey of Philadelphia Fed forecasters shows that overall expectations for inflation over the next five years are expected to be 2.4%.
“Even when analyzing the volatility of the stock market, a closer look at the S&P 500 has been up since January, despite concerns about inflation. “Even May and June, when the worst fears of inflation were, had a positive income,” he said, adding. that all this suggests that financial markets are no longer afraid of higher inflation.
Xia noted that this does not necessarily mean that investors “will not be afraid” to send a message to the Federation about its intention to reduce its quantitative easing program, but said that the Federal Reserve still manages its slow communication “quite well”.
“It can be assumed that the markets are now more focused on the situation with Covid, in particular, the spread of the Delta version,” he said.
The number of Covid cases is rising again in different parts of the world, with several countries, especially in the Asia-Pacific region, reintroducing restraint measures in recent weeks. Meanwhile, the UK and others have continued to reopen their economies.
“But no matter where you look, the common denominator (և hope) is the broad success of vaccination programs, which will allow the history of recovery to continue at H2 this year,” Xia said.
It is on this basis that HSBC still invests in equity, particularly in areas that are directly exposed to consumers, such as consumer discretion and financial real estate. However, he warned investors that instability could still occur periodically.
The strategists of the big banks, however, are divided on the prospects for the second quarter. Sebastian Radler, head of Bank of America’s European Capital Strategy, told CNBC Pro Talks earlier this week that as long as growth is modest, the reopening slump is fading, “governments” and central banks are being stimulated, and stock markets will be losing money.
“We think we have seen very clearly the peak of the global և euro area cycle at the end of the second quarter, in very simple terms, if you are slowing down instead of accelerating now, you are really starting to lose the main catalyst for this fantastic capital market activity you have seen. “For the last 15 months,” said Radler.