The month of July saw rising cases of Covid-19 due to the highly transmissible Delta Variant that has taken root in most countries, leading to positive sentiment and even fears of economies overheating being dampened.
How has the global economy been performing amidst the spread of the Delta Variant?
Fears of a global economic slowdown is on the rise due to the spread of the more transmissible Delta Variant despite ongoing vaccination programs. Global cases are currently at 194mn and deaths are at a rising 4.16mn.
US yields fall due to concerns of economic slowdown: The real yield on U.S. 10-year debt fell to a record low as concerns grew over the outlook for economic growth. It points to souring investor sentiment amid the rapid spread of the delta variant that threatens to derail the economic recovery and it comes as investors piled into haven assets. The rate, which strips out inflation, fell five basis points to minus 1.127%.
Global political risks and social risks increasing: The annual update of the Coface index shows a sharp rise in political risk around the world. The Delta variant of the coronavirus, when factored together with a number of persistent economic issues such as fresh lockdowns, enduring unemployment in a number of countries, and higher commodity prices resulting from fiscal stimulus measures are continuously weakening purchasing power and living standards according to Coface.
Global supply chains are on a fragile footing: The Delta variant of the coronavirus has devastated parts of Asia and prompted many nations to cut off land access for sailors. Given ships transport around 90% of the world's trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics. In addition deadly floods in China and Germany have further ruptured global supply.
How have countries been facing recent inflation fears?
Inflations fears are fairly mixed with some analysts saying that rising inflation is only transitionary and even expecting a possible upcoming economic slowdown while others sounding the alarm of economies overheating and inflation surging.
Investors and fund managers believe global economy has reached ‘peak boom’ : The Bank of America's July global fund manager survey shows that fund managers are much less bullish over growth, earnings and inflation compared to earlier in the year. July economic growth expectations and profit growth expectations have declined. Just 53% of fund managers expect earnings per share to rise, compared to 89% in March.
UK inflation is at its highest since 2018 : British inflation surged further above the Bank of England's target in June to strike 2.5%, its highest since August 2018, increasing speculation that the BoE will have to consider sooner whether to ease off its huge stimulus programme. Prices for food, fuel, second-hand cars, clothing and footwear rose as the economy bounced back from its lockdown slump, the Office for National Statistics said.
US produce prices see significant surge: Over the past 12 months, US producer prices rose 7.3 percent – the steepest advance since annual numbers were first crunched back in November 2010. When businesses see prices rise, those costs are often passed on to consumers. Wednesday’s report on producer prices followed data released on Tuesday that showed US consumer prices in June experienced their sharpest one-month spike since June 2008, and their largest annual gain since August 2008.
How have commodities been performing?
Oil prices falls to lowest since March:
Oil prices reached a monthly high of $77.81 per barrel on the 6th of July falling to a low of $68.62 a barrel on the 20th of July after an OPEC+ agreement to boost output stoked fears of a surplus just as rising COVID-19 infections once again threaten demand due to the spread of the new Delta variant.
Gold prices relatively higher in July:
Gold prices rose in the first half of July starting from $1771.85 an ounce to a high of $1833.15 an ounce by the 15th of July however falling after. Gold prices remain at a relatively higher rate than in June, this maybe attributed to comments from the Federal Reserves’ Chair Jerome Powell which suggested that the central bank would remain accommodative despite recent spikes in inflation readings. Gold is also considered a safe have asset that investors will use to absorb the increased risk and uncertainty caused by the spread of the Delta Variant.
China's export growth quickens as global vaccinations, easing lockdowns lift demand
China's exports grew much faster than expected in June, as solid global demand led by easing lockdown measures and vaccination drives worldwide eclipsed virus outbreaks and port delays. But overall trade growth in the world's second-biggest economy may slow in the second half of 2021, a customs official warned on Tuesday.
OPEC+ deadlock is bad news for oil producers and consumers, IEA warns
The International Energy Agency on Tuesday warned that world oil markets are likely to remain volatile following a breakdown in talks between OPEC members and their non-OPEC allies, creating a no-win situation. In its latest monthly oil market report, the IEA said energy market participants were closely monitoring the prospect of a deepening supply deficit if a deal was not reached.
Will Another Taper Tantrum Hit Emerging Markets?
Market movements this month have led to renewed fears that changes in US financial and monetary conditions will trigger a painful wave of capital flight from emerging markets, as happened in 2013. But times have changed, and the greatest risks to emerging markets now lie elsewhere.
Global investors’ exposure to Chinese assets surges to $800bn
Despite growing tensions between the international community and Beijing, global holdings on Chinese stocks and bonds have increased by 40% compared to last year. Foreign investments on Chinese treasury have increased by 50% compared to last year. It's the same for Chinese equities and government bonds. Majority of enthusiasm towards China’s assets has been fueled due China’s quick recovery and rapid economic rebound from Covid 19.
IMF approves reforms to help poor countries in economic recovery
IMF on 14th July approved policy reforms and a funding package to aid in the recovery of Low-Income Countries from the ongoing Covid 19 pandemic. The reforms approved seek to ensure that the Fund can flexibly support Low-Income Countries financing needs during the pandemic and the recovery while continuing to provide concessional loans at zero interest rates.
Compiled by: Emaad Rizwan
Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.