Our Insights

Foresight from the frontier.

April 14, 2021
  • Market expects US inflation volatility
  • A deep dive into global asset classes

This week our team has performed a deep dive into the performance of investment asset classes and returns on a global scale since 2008.

First, we analysed returns by asset class and style from the first quarter of this year, comparing them to each year since 2009. We found that rising bond yields have dominated 2021’s first quarter, along with a value-driven equity market rally. Massive further US fiscal stimulus measures and the success in the roll-out of coronavirus vaccines in the US and the UK have contributed to rising optimism about the global economic outlook. Rising bond yields and higher commodity prices have also helped boost value stocks, while more domestically orientated small cap stocks have been well supported.

Second, upon assessing returns in world equity markets, we found that Japanese stocks have benefitted particularly from a weaker currency this past quarter – while it was European equities, with their higher degree of value characteristics, which outperformed expectations.

Our next metric was returns in the global fixed income market. Recently, fears of increasing inflation on the back of additional stimulus have pushed sovereign yields higher, and it was the riskier end of the fixed income spectrum that outperformed. As real rates moved up, rate-sensitive bond markets suffered, however.

Last but not least, we surveyed the commodities landscape. Overall, in 2021 to date, optimism for economic recovery from the pandemic has continued to support commodities, with oil having grown by 22% and industrial metals 11% year-on-year. Gold, meanwhile, stabilised in March.

We have picked out a chart from Bloomberg, as analysts upgrade their profit forecasts on the back of optimism over the increasing numbers of Europeans getting immunised. It notes the difference between upgrades and downgrades in the continent stands at its highest since 2010. Miners, oil producers, carmakers and banks are among those companies enjoying the bulk of upgrades, while certain market industries are seeing lofty valuations. That said, the recovery remains fragile. Upgrades from analysts only raises the bar for positive surprises, while earning misses could be punished by markets.

Industrial production disappoints in India

India’s industrial production was down 3.6% year-on-year in February, disappointing the consensus rate (-3.0%). The decline was led by relatively poor performances from mining and the manufacturing sector which accounts for78% of industrial production. More broadly, consumer price inflation (CPI) edged up to 5.5% in March – the highest in four months, driven by increases in food prices and outside of the Reserve Bank of India’s target range. Yet this is unlikely to shake the RBI’s course, with a period of inflation softness expected ahead.

Market expects US inflation volatility in the year ahead 

CPI was up 1.6% year-on-year in March. At 2.6%, the rate is slightly above expectations, with prices for food and energy having been more volatile – as well as for used cars, home furnishing and personal care products. Data showed the pandemic’s squeeze on rents is over, with rental vacancy rates now very low and demand having rebounded strongly. Sectors affected by Covid are showing signs of life, but remain below pre-Covid levels. Across the year, further volatility in US inflation is expected, as April and May see stronger rebounds. A likely mark of 3% by the year’s end, accompanied by wage inflation, may prompt different tones from the Fed.

  • 16th April: Bank of England Monetary Policy Committee Member Sir Jon Cunliffe is set to speak.
  • 16th April: Data is expected out of China with GDP, industrial production and retail sales figures giving further indication of the strength and breadth of China’s recovery.

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