The US dollar continued to fall from its peak at the end of March. This falling dollar is part of the rising inflation trend that is unlikely to end any time soon. Minutes published by the US Federal Reserve stated that “an unspecified number of committee members” had mooted discussing scaling back the central bank’s monthly bond purchases in a future meeting

Markets were relatively quiet this week, as largely positive economic news flow did little to move asset prices in one direction or the other. Equities advanced slightly on a New York Times report claiming that US President Biden will seek $6 trillion in US spending in the next fiscal year; the White House will unveil its full proposal later today.

Investment professionals have for many years employed the concept of an ‘investment clock’ to determine which asset classes perform best in the various stages of the global economic cycle and interest rate changes. While the hand is currently pointing to economic and equity market recovery, is the clock ticking for investors? Is the mounting concern over inflationary pressures and possible rate hikes justified?

Data released yesterday showed US consumer prices rising in May at the fastest pace seen since 2009,echoing much of the sentiment which appears to have been underlying market expectations over the last few weeks. Whilst the Federal Reserve insists this inflation is transitory to justify its inaction, the definition of “transitory” is open to interpretation. Driven by a vastly expanded money supply and a number of longer-term trends, it is perhaps more likely that inflation will remain high for some time.

When share prices plummet as they did in the first quarter of last year, it’s not always easy to make a convincing case for continuing to hold a good-quality, but hard-hit company – especially one in the beleaguered hospitality sector. A year ago, we not only held on to but strengthened our position in Intercontinental Hotels Group (IHG).

The US Federal Reserve sharply upgraded their growth expectations for the US economy in 2021 from 4.2% to 6.5% despite cautioning that a full recovery from the impact of the pandemic was distant and would require ultra-easy monetary policy.

After rising to their highest point since record lows in 2020 last week, the upward momentum in US
treasury yields paused. Despite this pause, Jerome Powell stated that Federal Reserve officials have been
monitoring the rise in yields since January but rejected claims that it warranted concerns.

It has been a strong week for equities as further dovishness from the Federal Reserve helped bolster market sentiment. Investors were relatively unfazed by Fed Chairman Jerome Powell’s further reminders that the pandemic is far from over, or by surprisingly high applications for US state unemployment insurance.

It has been another strong week for markets with the S&P 500 Index (measuring the performance of the 500 largest listed US companies) hitting all-time highs against a backdrop of a surging bond market. Previous iterations of this publication have highlighted the trend of fairly rapidly and persistently rising bond yields over recent weeks; the pause in this dynamic this week has been slightly strange, especially given the strong print on US retail sales which was announced on Thursday.

Rising government bond yields have dominated market noise this week with the yield on 10-year US Treasuries (US Government bonds) rising to its highest level in over a year. Equity indices wobbled in
response to these dynamics with fears that rising borrowing costs could derail the already fragile economic recovery.