End of the beginning?

24 May 2021

In this week’s Market Pulse, Chief Investment Officer Bernard Swords revisits the topic of inflation and summarises the views from his monthly Top Down memo (issued last week) as the economic cycle moves from recovery to expansionary mode.

  • Last week’s muted asset market moves cover some interesting developments below the surface. As we all know inflation has been a topic on everybody’s mind of late, but the concerns seem be under control. Bond yields have moved up but not in a very meaningful way. The yield has not got back to the highs we have seen earlier this year. In equity markets the defensive sectors and quality have been relative winners recently, not what you would expect in an inflationary environment.
  • We have seen some levelling off in the economic data from the US which is pulling some momentum out of the global figures. However, last week’s PMI’s from the euro area suggests the reopening is leading to a stronger recovery than expected and this should offset the lower momentum from the US.
  • So, for the short term it will still feel like the recovery phase of the cycle. But we are approaching the end of this and markets will start to discount this inevitable momentum lull.
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