- UK and US vaccinate over half of their adult populations with one dose
- India reports deadly second wave of infections with new Covid-19 variant identified
- IMF raises its global economic growth forecast for 2021 from 5.5% to 6%
- US stock market touches record high and UK approaching pre-covid market levels on vaccination progress
- Bank of England forecasts UK economy to grow at fastest rate since World War II
- Bank of England indicates intention to scale back QE
- UK trade figures for February show a strong recovery in exports to the EU
- European PMI readings show business optimism at a three-year high
- US retail sales recover strongly in March with households receiving pandemic relief payments
- Japan’s exports jump 16% in March helped by strong economic recovery in China
- China’s economy grows by 18.3% in the first quarter of 2021
Latterly, the Bank of England also joined the party and has recently upgraded UK growth forecasts. Indeed, the UK economy is set to grow at its fastest rate since the Second World War. After an extreme contraction last year, the rebound in the economy should see the UK growing faster than the US and Europe.
Reassuringly, the first quarter of 2021 also saw UK quoted companies issue their lowest number of profit warnings in 21 years! Boosted by economic recovery hopes and vaccine rollout, companies met or exceeded forecasts that have been cautiously lowered due to the global pandemic.
Central banks had a busy month, and in particular the US Federal Reserve (Fed), trying to sooth inflationary fears that had spooked markets over the first quarter. Bankers continue to argue that inflationary price pressures will be transitory. Overall, bond markets took heart from the comments, with Government bond yields typically edging lower. In addition, it is worth remembering that the Fed has a dual mandate which extends past inflation to include employment.
Unlike temperatures in the UK, commodity prices have continued their ascent. Buoyed by pent up demand and the strong economic backdrop alongside some supply imbalances due to covid. This price pressure has been felt almost universally across all commodities, wheat is at its highest level since 2013, copper rising with an almost vertical ascent and timber prices up threefold over 12 months. Whilst companies typically surprised on the upside, unsurprisingly given this backdrop the other key feature of earnings season was the number of companies noting the rising cost of inputs.
Whilst the US employment backdrop has reassured with solid wage growth and the large number of jobs advertised, the number of unemployed remains high, with companies reporting difficulties in finding employees. It is unclear what is causing this, but it may well be that the support measures unveiled by the Biden administration serve as a disincentive to work.
Joe Biden’s first 100 days have served to show us just how ‘left wing’ his policy aspirations are. Be it via social welfare changes or his emphasis on the importance of unionised jobs. Whilst his simple majority in the Senate blunts his ability to pass policy, it would appear likely that the overall cost of labour in the US is likely to continue to rise, further adding to the inflation uncertainty.
One thing even Biden’s critics can’t disagree with, is the success of the vaccine rollout, with over half the adult population having received a first dose. Even the EU, having performed dismally at the outset, is seeing a much-improved vaccine rollout. Whilst mindful of developments in India and Brazil, the backdrop for the world economy still looks very promising, with some remarkable growth likely in the coming months, as covid restrictions are removed and economies fully reopen.
We are pleased to see that April proved to be another good month for most stock markets. Although as we enter May, typically a nervous month for investors, we see the potential for a period of consolidation. Whilst the level of optimism remains high, the path out of the pandemic is liable to be unpredictable, so a return to fresh market volatility would not be unrealistic. Nevertheless, until such time as central banks, in particular the Fed change their tune, the overall backdrop continues to be supportive of shares.
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