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.

In May, the market’s risk-on sentiment was supported by the gradual global economic recovery – country by country – as well as better-than-expected corporate earnings. Meanwhile, central banks confirmed their near-zero short-term interest rate policy, a key factor to maintaining the high price level of stock markets in the West.

Yesterday, People’s Bank of China (PBoC) raised the reserve ratio requirement for foreign exchange from 5% to 7% in an attempt to curb the yuan’s appreciation. Although this will reduce the supply of US dollars and other foreign currencies onshore China such as EUR & JPY, it is unlikely to have a lasting impact on the ongoing USDRMB bearish trend.