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One more thing

Yet another week has passed and global economic recovery seems to be underway.  Boris Johnson faces a rather tricky political decision about the easing of restrictions in the face of new Covid strains. Despite that, the UK is making healthy strides forward:

  • UK Employment change is back into positive territory, following a poor 2020
  • Job vacancies are rising back towards pre-covid trend levels
  • Youth unemployment has taking a sizable turn lower

The US is likewise in a similar position, but with a $5.7tn upcoming spending plan:

  • Youth unemployment is approaching pre-covid levels (which are multi decade lows)
  • Job vacancies are at all-time highs
  • Job offers have jumped markedly in the first quarter and are set to continue

It’s no wonder that equity markets continue to push higher, even as institutional investors have become uncomfortable with the widening gap between prices and the market fundamentals which should drive those values. A surge in commodity prices should ironically make us feel better because it provides some tangible evidence of a pickup in business volumes, where more customers vie for a limited supply of raw materials. 

Bottom line: The only data that seems different from the past several weeks is a counterintuitive decline in bond yields. Over the past several decades bond prices have mostly moved in opposition to stocks—which spurred the 60/40 equity-to-debt allocation that most pension investors will no doubt recall—but that correlation of prices has been changing in the past few years. In this case, one would expect a run higher in equities and increasing inflation expectations—we mentioned commodity prices already, but shipping costs have been a recent contributor—to result in higher yields, but that hasn’t happened. This has led some market commentators to speculate that:

  1. Central bankers will remain permanently in negative/zero rate plus QE mode
  2. Equity rises are spurious, and bonds are reflecting a less upbeat economic reality

The truth is no one knows which is true but as equity markets continue to move higher the debate will only grow in urgency.


The week ahead


Sterling continued to strengthen last week after news of a possible interest rate hike in the latter half of 2022, pushing Cable above $1.42 echoing the pairs’ 2018 highs. Consumer confidence has acted as another tailwind for the Pound as the easing of coronavirus restrictions continues to encourage consumer spending. In the last few days, the OECD have upgraded their UK economic forecasts projecting 7.2% growth this year, revised from the 5.1% projection made in March. As the UK heads toward the final phase of ending coronavirus restrictions, the threat of the Indian variant appears to be the only potential roadblock on the route to normality.

  • Bank of England Governor Andrew Bailey is due to speak today at 4:00pm and later this week on Thursday.
  • Mortgage Approvals are scheduled for release on Wednesday and are forecast little changed at 80K in April vs 83K in March.
  • The final Services PMI will be published on Thursday expected to read 61.8 for May.
  • UK Construction PMI is forecast 61.9 for May vs 61.6 in April.



After a sharp pull back on Friday, EUR/USD has pushed back above $1.22. Any tightening of US monetary policy looks unlikely in the near term and with coronavirus cases on a sharp decline on the continent, the Euro could continue to strengthen. The release of revised manufacturing PMI’s this morning registered a record high for the Eurozone of 63.1 in May, showing early signs of an economic rebound. Eurozone inflation also hit 2% in May, the highest it has been for more than two years. With ECB President Christine Lagarde due to speak this Friday, we could see the first indication of an interest rate hike.

  • German Retail Sales m/m are forecast at -2.4% for April vs 7.7% in March most likely due to coronavirus restrictions.
  • Spanish Unemployment Change is due out on Wednesday, expected at -115.2K for May vs 39.0K in April.
  • German Bundesbank President Jens Weidmann Speaks on Wednesday.
  • European Central Bank President Christine Lagarde Speaks on Friday at the Green Swan 2021 Global Virtual Conference.



The DXY was range bound for most of last week after struggling to gain any traction with the release of positive economic data elsewhere. The rapid coronavirus vaccine rollout in the US has delivered at least one dose to 50% of the population so far, paired with the fiscal stimulus currently in the market and the US is reportedly on track for its fastest growth levels since 1984. With Core PCE inflation rising 3.1% year over year for April, the Federal Reserve have indicated they may consider tapering asset purchases. It is likely any tangible change is sometime away, until evidence of persistently high inflation is clear.

  • The ISM Manufacturing PMI is forecast 60.8 for June vs 60.7 in May while the ISM Services PMI looks set to come in at 63.0 in June vs 62.7 in May.
  • Federal Reserve Chairman Jerome Powell is due to speak at 12:00PM this Friday at Green Swan 2021.
  • Non-Farm Payrolls are due on Friday and the US economy is forecast to have added 645K new jobs in May vs 266K in April.
  • The Unemployment Rate looks likely to fall to 5.9% in May vs a reading of 6.1% in April.



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