While the month of May saw continuous impacts of the Covid-19 pandemic, growing concerns over rising inflation also started to become widespread in May. The big question, as economies recover, is whether inflation would be transitionary, or whether we are at the start of a longer term inflation upswing.
Have countries managed to keep the pandemic at bay?
While global cases are currently at 166mn and deaths are at a staggering 3.43mn, countries that were severely hit by new waves of the pandemic during the last two months such as India seem to be marginally improving, seeing a slowdown in daily cases.
India seeing a gradual fall in cases: India recorded the highest new daily Covid-19 cases on the 9th of May which amounted to 391009 daily new confirmed cases. However daily cases have seen a gradual decline since. The overall numbers suggest, the pandemic might be slowing down in Delhi, with the capital now reporting a fifth of new cases that it used to report during the peak of the second Covid wave. Several other data points indicate the same.
South East Asia see an unexpected surge: Singapore and Taiwan have both seen a sudden and aggressive rise in cases - with Singapore logging 248 new cases just last week, and Taiwan 1,200 local infections. By global standards, these numbers may seem small - but for these places, these figures would have been unthinkable just months ago, where only zero or single-digit Covid cases were seen since the start of the year.
Worries over the race between variants and vaccines:Although vaccination rates have picked up, a new variant from India, B.22.214.171.124, was recently confirmed as being upto 50% more infectious than the highly infectious B.1.1.7. variant, which has been raging even in highly vaccinated countries such as Seychelles and Maldives. However, vaccination still seems to protect quite substantially from serious disease, although transmission effects might be less rosy.
What is the story around global inflation?
Adding onto worries from a continuing Covid-19 pandemic, quick recoveries in parts of the world are now combining with supply bottlenecks, with high inflation being the outcome. Markets are worried on what this means for the future.
The Fed insists that inflation is transitory: The Federal Reserve, along with other central banks across the world, continue to insist that recent high inflation, as seen in the 4.8% inflation in the US CPI, is mostly transitory. Base effects from 2020, short term supply bottlenecks, and the surge in demand are their cited reasons, and the Fed notes that there is still no need to tighten policy, although they stand ready to do so if inflation seems “unambiguously above targets”.
Market analysts warn of ‘cornered Fed’: Despite the Fed’s insistence, multiple analysts in markets believe that that Fed is cornered due to their mandate of increasing employment and sticking to a low rate environment, and that they would be too late to respond – requiring a much sharper interest rate adjustment once they finally respond.
Developing world faces huge risks in inflation: If global inflation does truly rise substantially, developing world central banks, which have undergone huge easing in monetary policy, could be suddenly hit with massive shocks, both on local prices as well as on their currencies. The divergent global economy and possible risks on supply chains is only further concerning here.
How have commodities been performing?
Oil prices fall as economies brace for inflation:
Oil prices rose from $66.65 per barrel at the start of the month to a monthly high of $70.04 per barrel on the 18th of May but fell slightly after due to renewed demand concerns as Covid cases in Asia rose and on fears rising inflation might lead the U.S. Federal Reserve to raise interest rates, which could limit economic growth.
Gold prices hit a three-and-a-half month high:
Gold prices rose across April starting from $1768.60 an ounce to a peak of $1890.05 an ounce by the 19th of May hitting their highest level in more than three-and-a-half months, as a weaker U.S. dollar and growing inflationary pressure bolstered the metal's appeal as an inflation hedge.
Inflation and China’s Slowing Stimulus Could Spell Trouble for Emerging Markets.
Inflation—and the possibility of higher U.S. rates and a stronger dollar—combined with a slowdown in China’s credit cycle could spell trouble for emerging markets broadly. Despite a rise in commodity prices that help resource-rich emerging markets, the asset class has lagged behind global markets in recent months as investors have focused more on a shakier outlook for a global economic recovery.
Foreign investors tiptoe into frontier markets in search of returns
Investors are starting to look for opportunities in frontier markets such as Uzbekistan, Tanzania and Egypt as they seek higher yields and look for assets that do not move with those in large developed countries. In less popular markets such as Serbia, Egypt and Kazakhstan, short term bonds would be high as 8%. By investing in those, portfolio managers hope to reduce the correlation with major emerging currencies.
Fed’s Bostic says there’s no reason to change policy despite inflation fears
Atlanta Federal Reserve President Raphael Bostic said on Monday he’s comfortable with the central bank’s ultra-loose policy even as inflation gains steam in the economy. He emphasized that the economy is still 8 million jobs short of where it was pre-pandemic and that policy should remain accommodative until this gap is closed.
A promising new vaccine candidate could protect us from multiple coronaviruses — including some that haven't jumped to humans yet
A team at the Duke Human Vaccine Institute has developed a pan coronavirus vaccine that might be able to protect against multiple coronaviruses in the SARS family. That includes SARS-CoV-2, as well as the virus most people know as SARS — SARS-CoV-1 — which was responsible for an outbreak in 2003.
EU and India Agree Trade Reboot to Confront China Threats
An Agreement was struck between EU leaders and Indian Prime Minister Narendra Modi at a virtual summit held on saturday to resume long stalled talks on a free trade deal. This came just a few days after the two countries pledged to double their trade by 2030. EU officials warn that even though there is willingness to resume talks, a lot of progress needs to be made on key areas such as Indian tariff for goods, specially cars and intellectual property rights.
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.