Bassanese Bites: RBA theatrics – August 02 2021

Global markets*

  • After pushing to new highs, last week appeared one of consolidation for global equities – buffeted by continued solid economic growth and corporate earnings reports on one hand, and concern with the delta spread and China’s regulatory crackdown on the other. Long-term bond yields also continued to trend lower.
  • Apart from Amazon, last week’s U.S. tech earnings reports were as strong as could be hoped, though markets had lifted the previous week in anticipation of these results. While the delta variant is spreading globally, the good news is that death and hospitalisation rates are much lower among the vaccinated – which thankfully is most of the U.S. population – thereby reducing the risk of significant new lockdowns.
  • As for China’s latest regulatory crackdown, I wrote a note last week suggesting this may well prove a good buying opportunity in the Asia ETF. U.S. core consumer price inflation came in a bit lower than expected last week – consistent with the view that supply chain inflation pressures have likely peaked. Q2 GDP growth was also a bit weaker than expected, though this appeared to reflect lingering supply bottlenecks in housing construction.
  • The Fed meeting came and went last week, with Committee members conceding they’ve at least started talking about tapering, though as yet no announcement on when they might begin. (My view is an official announcement won’t come until the November FOMC meeting, though we should expect a number of strong hints to this effect well before that date. I also suspect the actual tapering won’t start until early 2022 and will be very gradual in nature so as to avoid any bond market tantrums.)
  • In terms of key events this week, it will be interesting to see if China acts to further ease investor concerns over regulatory moves, or throws out another policy surprise. In terms of delta, the apparent peaking of the latest surge in the UK is worth watching as it may be a lead indicator of trends in other developed markets such the United States.
  • Data wise, there is a smattering of U.S. manufacturing and non-manufacturing data which should show economic growth remains fairly solid. That should be confirmed by a further 900k jobs gain in the U.S. July payrolls report on Friday.

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