In recent weeks, financial markets have delivered steady positive returns with government bonds, corporate credit and equities all making gains. Since mid-May, European stocks have outperformed the US. Sector performance has been mixed with less leadership from cyclically sensitive stocks and a recovery in technology names. US 10-year treasury yields have fallen back 0.15% to below 1.50%, the price of Gold is largely unchanged at $1,865 and the Dollar index is modestly higher (+0.32%).

Market commentary remains intensely focused on the risk of persistently higher inflation and the reaction function of central banks. Despite another upside surprise in year-on-year (YoY) US inflation in May, financial market concern remains contained. The US consumer price index (CPI) rose 5% YoY in May, the fastest pace since 2008, driven largely by supply chain bottlenecks and reopening demand. For example, a semiconductor shortage hit new car production, resulting in a 7.3% month-on-month (MoM) increase in the price of used cars and trucks. This accounted for a third of the headline increase. Core CPI climbed to 3.8% YoY, up from 3% in April, reaching its highest level in nearly 30 years. Financial markets have not shown any immediate concern to the higher than expected price increases, US treasury yields and market implied inflation expectations have continued to edge lower. The somewhat counter intuitive reaction of the market may suggest a growing number of investors view the current elevated level of inflation as transitory – tied to the base effects and dislocations caused by the pandemic.

Read the whole note here

 

 

 

 

Disclaimer: The value of investments and any income from them can go down as well as up and investors may not receive back their original investment amount. This communication is for information purposes only. It is not intended as a personal recommendation of particular financial instruments or strategies and it does not provide individually tailored investment advice. This document provides the views of the London & Capital Investment Team examining the fundamental background, economic outlook and possible effect on asset markets. This document is not an invitation to subscribe and is by way of information only. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. If you are considering investing, you should consult your London & Capital adviser. The views expressed herein are those at the time of publication and are subject to change. Correct at time of going to press.
London and Capital Asset Management Limited is authorised and regulated by the financial conduct authority, 12 Endeavour square, London, E20 1JN. Firm reference number 143286. Registered in England and wales, company number 02112588. © London and Capital Asset Management Limited. All rights reserved. London and Capital Wealth Advisers Limited is authorised and regulated by the UK Financial Conduct Authority (firm reference number 120776) and by the U.S. Securities and Exchange Commission of 100 F street, NE Washington, DC 20549, with sec firm reference number 801-63787. Registered in England and Wales, company number 02080604. © London and Capital Wealth Advisers Limited. All rights reserved.