Global Markets Update – Monday 28 June 2021

Rebounding bank rates

Central banks in several emerging markets raised rates, although developed market policymakers signaled that they expected the recent rise in inflation to be temporary.


The FTSE 100 rallied 1.7% over the week.

Health Secretary Matt Hancock was forced to resign over evidence he had breached his own guidance. He has been replaced by ex-Chancellor of the Exchequer Sajid Javid.

The Bank of England admitted the inflation rate is likely to exceed 3% in coming months but said the surge in prices would be “transitory” as it kept both interest rates and the size and speed of its bond-buying programme unchanged. However, minutes of the latest meeting showed that more than one MPC member was beginning to feel uncomfortable with the committee’s exceptionally stimulative stance towards monetary policy.

The flash estimate of the UK’s IHS Markit/Cips composite purchasing managers’ index eased to 61.7 in June, down slightly from a record high of 62.9 in May. Service sector activity fell to 61.7 in June compared to 62.9 in May, while manufacturing activity eased to 64.2 in June from a record high of 65.6 in May.


US equities recorded their strongest week since February, with Joe Biden’s infrastructure deal boosting industrial, energy and financial stocks. The S&P 500 surged 2.7% over the week, reaching a new high after, while the Nasdaq jumped gained 2.5%, also closing at a fresh record.

Joe Biden secured bipartisan support for a new infrastructure deal that will focus on upgrading roads, bridges and broadband networks over the next eight years.

Jay Powell, Fed chair, made dovish reassurances that high hurdles remained for the tightening of monetary policy, saying that the central bank would not act “pre-emptively” on “the possible onset of inflation”. “Instead, we will wait for actual evidence of actual inflation or other imbalances.”

US core personal consumption expenditure, the Fed’s preferred measure of inflation, increased 3.4% in the 12 months to May, its largest annual increase since 1992.

The flash estimate of June’s IHS Markit US composite purchasing managers’ index fell to 63.9 from 68.7 in May as businesses suffered from inflationary pressures. Service sector activity dropped to 64.8 in June from the previous month’s all-time high of 70.4, while manufacturing activity jumped to a record 62.6 from 62.1 in May.

Durable goods orders rose 2.3% in May. However, the data missed market expectations of a 2.8% surge.

The Federal Reserve further loosened restrictions on dividends and buybacks imposed on America’s biggest banks during the Covid-19 pandemic as it released an analysis showing the lenders could suffer almost $500bn in losses and still comfortably meet capital requirements.


The FTSEurofirst 300 rose 1.3% over the week.

ECB officials signaled they are in no hurry to taper their massive emergency stimulus. ECB President Christine Lagarde said that it was not yet time to allow interest rates to rise and that a tightening of wider financing conditions would be premature and would pose a risk to the ongoing economic recovery and the outlook for inflation.

The flash estimate of the IHS Markit eurozone composite purchasing managers’ index (PMI) rose to a 15-year high of 59.2 in June, with “a record increase in manufacturers’ material prices”, accompanied by “the steepest increase in service sector costs since July 2008”. Service sector activity rose to 58.0 from 55.2 in May. This marked the steepest pace of expansion in the service sector since July 2007. Manufacturing activity held steady at a record high of 63.1. June also saw a further near-record lengthening of supply chains and an increasingly widespread depletion of warehouse inventories.

The IHS Markit Germany composite PMI rose to 60.4 in June 2021, its highest reading since March 2011. Manufacturing activity increased to 64.9 in June from 64.4 in May, while service activity jumped to 58.1 in June from 52.8 the previous month and he steepest pace of expansion in the service sector since March 2011.

The Ifo Business Climate indicator for Germany jumped 2.6 to 101.8 in June, the highest level since November 2018.


The Nikkei 225 increased 0.4% over the week.

The Jibun Bank manufacturing purchasing managers’ index fell to 51.5 in June from 53.0 a month earlier. This marked the weakest reading since February, amid renewed curbs in some parts of the country following the latest wave of local COVID-19 infections.

Pacific Basin ex Japan

South Korean stocks hit fresh peaks, led by tech shares. The Business Survey Index (BSI) on business conditions in the manufacturing sector in South Korea increased to 98 in June   from 96 in the previous month. This was the highest reading since April of 2011, reflecting an improvement in the business environment and future outlook.

Emerging Markets

Argentina reached a deal to avoid default by delaying the bulk of a $2.4bn payment due to a group of wealthy countries by the end of July. It now has until the end of March to reach an agreement.

Mexico’s central bank unexpectedly raised rates by 25 basis points to 4.25%. Policymakers said the Mexican economy rebound sharply in March and, while it moderated somewhat in April, it is likely to resume its recovery path during this year. Expectations of headline and core inflation in 2021 also rose.

Indian stocks reached an all-time high. Sentiment has been boosted by prospects of a strong economic recovery as several states eased pandemic-induced restrictions and as daily vaccinations hit record highs this week.

Russia’s central bank raised interest rates for the third time this year and signaled they would consider more monetary tightening at upcoming meetings.

Brazilian policymakers indicated they are evaluating the possibility of raising the benchmark interest rate again in August to counter persistent inflationary pressures on the economy.

The Czech National Bank raised its benchmark interest rate by 25 basis points to 0.50%. It was the first tightening move from the CNB Board since February 2020, with headline inflation hovering around the upper limit of the central bank’s 1% – 3% tolerance range for the previous two months.

The National Bank of Hungary raised its benchmark base rate by 30 basis points to 0.9%, a level not seen since May 2020. Market expectations had been for a 25 bps increase.


The yield on the 10-year US Treasury bond closed the week at 1.53%, with yields moving above 1.5% following the release of core PCE data, the Fed’s preferred measure of inflation.

The 10-year German Bund yield closed the week at -0.16%.


The Brazilian real touched its highest level since June 2020, amid brighter economic growth prospects and expectations of further domestic monetary policy tightening.


Brent crude rose above $75 a barrel for the first time since April 2019.

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Image by Gerd Altmann from Pixabay