Market Update – 29th April 2021.

29th April 2021

There has been a multitude of announcements and meetings to keep us busy this week, but given all the talk about how inflation is building, the big one was the outcome of last night’s Fed monetary policy meeting and accompanying press conference.

As we have previously warned, a sharp rise in global inflation in the coming months is a foregone conclusion as last year’s big oil price decline is replaced by this year’s higher oil price.

Additionally, we may also see some price rises for food and electronic goods, as droughts and freezes are reducing supplies of some foods, while a semiconductor shortage is starting to disrupt the steady production of cars, phones, computers, etc.  However, at this stage it is hard for us to say whether or not any of this will end up being passed on to consumers.

Nevertheless, we believe a sustained rise in inflation is unlikely – in other words, as the increase in inflation we will see in the coming months is transitory, it won’t have any impact on the longer-term inflation outlook.

Thankfully, while the Fed’s monetary policy meeting was this week’s big focus, the outcome was uneventful.

While the Fed acknowledged that the economic outlook is getting brighter and inflation readings are rising rapidly, they reiterated that policymakers were in no hurry to increase US interest rates.

This is great news as a policy mistake by the central bank could easily have hurt the economic recovery – despite the fact that there is clearly a lot of pent-up demand which will ensure the US (and global) economy grows strongly this year, the resurgence in infection cases in India and Japan highlight that the coronavirus outbreak is far from over and loose monetary policy is needed to support the economy and strengthen the employment market.  And more importantly, with the Fed committing to keep its foot on the pedal until “substantial further progress” is made towards its dual mandate on employment and inflation, it is clearly very bullish for global equity markets.

Investment Management Team