The proportion of vaccinated people continues to rise around the world while the number of deaths is decreasing rapidly despite the Delta variant. The global economy is normalizing with key unemployment figures improving, albeit not yet at pre-pandemic levels. Expected growth for 2021 remains strong, led by China. We also note corporate earnings have beaten expectations in major economies. As anticipated, inflation appears to be transitory, with China’s annual inflation rate at 0.8% in August, below market consensus (1.0%), thus easing the pressure on central banks to hike their short-term rates.

Although global macro economic data continued to be positive in July, market sentiment has been dampened by China’s regulatory tightening in the tech and education sectors as well as a potential new wave of Covid infections around the world.

The overall global macro environment remains positive for risky assets in general and equity markets in particular. We believe financial markets are benefiting from three main factors: first, the progressive reopening of economies, country by country, which will underpin economic growth and corporate earnings; second, the fact that inflation is most likely temporary; and third, central banks’ accommodative monetary policy, which will continue to support the economy in the foreseeable future.

Several key inflation figures were announced last week. China’s May inflation rate came in lower than expected on Wednesday. By contrast, inflation readings in the US, announced on Thursday, increased at a faster rate than the market anticipated, with US headline inflation at 5.0% YoY and US core inflation at 3.8% YoY. As a result, the USD appreciated against major currencies as market expectations of Fed tapering increased.

Albeit lower than expected, China’s trade surplus further increased in May according to yesterday’s official announcement, as China continues to benefit from strong global demand.