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Executive Summary
The economic story of March 2021 was dominated by worries over inflation and the subsequent rises in bond yields across the world. While vaccination drives continued, Europe and India also saw an uptick in Covid-19.
What is happening with inflation and interest rates?
Inflation concerns have risen: As the global economy shows signs of recovering, worries that inflation would pick up have jolted markets. This has been especially true in the US as a result of a prospective post Covid recovery supplemented by the US$ 1.9 bn stimulus package which may result in the economy overheating.
Federal Reserve pledges to keep rates low, but markets expect hikes: On the back of inflation concerns, the US Federal Reserve signalled that they expect to keep interest rates close to zero until at least 2023. However, markets continued to believe that the Fed would be forced to raise rates much earlier, and US treasury yields continued their spike, rising more than 100 BPS from the lows of 2020.
Emerging markets already facing the heat: With bond yields across the world rising in response to rising expectations of global interest rates picking up, emerging markets are set to bear the brunt of the problem. With high levels of debt, EMs are already starting to see weak capital flows, and if rates continue to rise over inflation worries, 2021 could look quite grim for emerging markets.
How has the global vaccination drive been doing?
As vaccination drives across the world continued, cases have generally been lower than in previous months, although concerns in Europe led to a slowdown in the global rollout. Cases have also picked up in Asia and Europe, and global cases are now closing in on 125mn, while death counts are almost at 2.75 mn.
US, UK vaccine rollout shows signs of success: After seeing the world’s largest Covid-19 outbreak, the US has been able to show success in its vaccination efforts. Almost 30% of the US population have now received at least 1 dose of a vaccine, while the numbers in the UK are at around 45% of the population. Crucially, death counts in vaccinated groups have plummeted, showing light at the end of the tunnel.
Cases have been rising in Asia: India and Pakistan reported a jump in new coronavirus infections driven by a resurgence in cases in populous states, requiring curfews to control them. Although vaccination efforts are underway, and have been increased, they have suffered from both production issues and accessibility, as well as some reluctance by local populations to receive the vaccine.
Weak vaccine rollout leads to third wave in Europe: Several European countries are extending or reintroducing lockdown measures as a third wave of the pandemic sweeps the continent fuelled by more contagious new variants of coronavirus such as the B117 mutation first detected in the UK. The variant first found in Britain is spreading significantly in at least 27 European countries, as the EU slowed down their vaccine rollouts over fears of alleged side effects of the vaccine.
How have commodities been performing?
Oil prices rose to pre-pandemic levels, before falling again:
Oil prices rose from $63.69 per barrel at the start of the month to a monthly high of $69.63 per barrel on the 11th of March as positive expectations for global demand compined with OPEC+ continuing to affirm cuts in supply. However, as Covid-19 cases started rising in Europe again, oil prices fell to $60.82 per barrel by the 23rd of March.
Gold prices saw a dip, but were mostly flat across March:
Outside of a dip that took prices down to lows of US$ 1,678.00 per ounce on the 8th of March on the back of a spike in global yields and a stronger US dollar, gold prices were largely flat across March, hovering around the US$ 1,730 per ounce levels as rising interest rates, a volatile dollar, and worries over Europe’s outlook tended to keep the price of gold muted.
Top 5
Emerging Markets Brace for Rate Hikes With Debt at Records
After an unprecedented period of rate cuts to prop up economies shattered by Covid-19, emerging markets are now looking at rate hikes. Behind the shift: Renewed optimism in the outlook for the world economy amid greater U.S. stimulus. That’s pushing up commodity-price inflation and global bond yields, while weighing on the currencies of developing nations as capital heads elsewhere.
Inflation already at the door in parts of global economy
The big question in financial markets is whether the post-pandemic recovery will bring a burst of inflation. In some corners of the world economy, it has already arrived, for reasons directly tied to the disruptions of Covid-19, the policy response to it or the surge in demand that comes with hopes of recovery.
Will the Fed push back against higher bond yields?
Strategists forecast that 10-year yields will continue to rise in 2021. According to them, the Fed will likely tolerate higher yields if fundamentals continue to improve and financial conditions remain accommodative.
Biden’s stimulus will affect the whole world
A booming US economy as a result of Biden’s new stimulus package means economic demand will “spill over” into the rest of the world, particularly its nearest neighbours and most important trading partners Mexico and Canada as well as export-oriented economies in east Asia and Europe.
AstraZeneca vaccine halt could slow down Asia’s economic recovery, says economist
Asia’s economic recovery could slow down as more countries suspend the use of the Covid-19 vaccine developed by AstraZeneca and the University of Oxford, warned the chief Asia-Pacific economist of Moody’s Analytics.
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.
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