Economic Update June 2021
Summary
Inflation rears its head
Advanced economies will experience stronger near-term growth as economies re-open and are fuelled by ongoing stimulus. Yet this outsized growth occurs while supply chains remain impeded by pandemic effects, hence a disequilibrium has emerged in
the global economy. This has sparked inflation concerns, notably in the US, that have reverberated through markets.
GLOBAL EQUITY MARKETS
Markets lose momentum as inflation emerges
Source: IFM Investors, MSCI, Macrobond as at 2 June 2021
Inflation is clearly the key tail risk for financial market investors at the moment. This has just as much to do with the impact inflation has on equities and other asset classes as it has to do with the fear that the US Federal Reserve, and potentially
other central banks, will be forced to respond to it by removing some of the stimulus that has buoyed equity global markets for much of the COVID-recession. Reflation was always coming and has been evident in commodity markets, manufacturing
surveys and semi-conductor and producer prices – but now it’s arrived in consumer prices, markets seemingly face an inflection point.
In our view – and that of most central banks – inflationary pressures will likely be transitory, with demand and supply normalising following the recovery phase. This view is reinforced by the fact that most pre-pandemic headwinds
to inflation will persist over the medium-term.
About the author
Chief Economist
Alex Joiner, PhD
Joined in 2016
Alex Joiner is Chief Economist at IFM Investors. He is responsible for the firm’s economic, financial market and geopolitical risk analysis that is key in IFM’s investment process. In this capacity he engages with IFM’s domestic and global clients on macro-investment trends and themes. He is a frequent commentator on economic and markets via traditional and social media and regularly speaks at public forums and conferences. He has over two decades of professional experience in economic and markets and prior to joining IFM was the Chief Economist at Bank of America Merrill Lynch (Australian & New Zealand) after being a senior economist at ANZ Bank. He holds a First Class honours degree in Economics and a PhD in Econometrics from Monash University. Alex is also committee member of the Australian Business Economists.
About the author
Economist
Frans van den Bogaerde, CFA
Joined in 2019
Frans supports the Chief Economist with the firm’s economic, financial market, and policy analysis and forecasting. He holds a Bachelor of Commerce (Finance & Economics) with Honours in Finance (First Class) from the University of Melbourne. Prior to joining IFM Investors Frans was undertaking his Honours degree and was a researcher with the Brain Mind and Markets Lab at the University of Melbourne.