Commentary on financial market developments – June 2021
Highlights:
- US: support for technology companies
- US: annual inflation +5%
Commentary:
The first half of this year brought very decent gains for investors in the stock markets. For example, the US S&P 500 index has surpassed its all-time highs more than 30 times this year, firming +14.4%. In June alone, share prices continued to strengthen, that is, if we look at the main world indices. Oil rose significantly again, ending the month at USD 75.13 per barrel of Brent crude. The price of gold, on the other hand, fell significantly, dropping below USD 1 800 per troy ounce.
On the stock markets, technology companies did well after a long pause. The share prices of the technology segment’s main drivers, such as Apple, Amazon, Google, Facebook, Microsoft and Tesla, managed to rise by +5% to +10%. US tech firms benefited from the package passed by the US Senate in June. The measures adopted are intended to strengthen the US position vis-à-vis Chinese technology. The package includes USD 50 billion in support for research and production of semiconductors. The US thus wants to reduce its dependence on imports of scarce chips from China, while at the same time encouraging the creation of new jobs.
Year-on-year inflation in the US has risen to +5%. It is estimated that about half of this high figure is accounted for by pent-up demand for cars, airline tickets, accommodation and restaurant meals. This is also the argument used by the US Fed, which says that price pressures are transitory and therefore it is still not raising interest rates. However, the Fed may have another main motive for maintaining an extremely loose monetary policy, and that is the labour market. The coronavirus pandemic is estimated to have eliminated more than 70 million jobs and the situation is unlikely to improve any time soon. That is also why the Fed is continuing quantitative easing and continuing its bond-buying programme, pumping money into the economy, at a rate of USD 120 billion per month.
The situation is different in the Czech Republic. Although inflation is lower compared to the US and is at around +3% year-on-year, the CNB is worried about higher inflation and has raised the base repo rate by a quarter of a percentage point to 0.5% and expects further increases in the second half of the year. This may be due to concerns about extreme house price growth and the associated boom in mortgage lending.