Commentary on financial market developments – July 2021
Highlights:
- IMF expects +6% global economic growth this year
- China: tech stocks under pressure
Commentary:
Trading in the world’s major stock markets was mixed. While the US and European indices gained, the main Chinese, Japanese and Brazilian indices lost quite a lot. The price of gold rose compared to the previous month, but this was so far only a partial correction of the previous decline. The post-Covado global recovery continues to drive up the price of oil, which ended July at USD 76.33/bbl Brent.
The main question is how much longer the current rapid growth of the global economy, which came after the launch of vaccinations and the relaxation of some restrictions imposed against the spread of COVID-19, will continue. The International Monetary Fund still expects the world economy to grow by +6% this year, but there are risks that could hit the global economy later this year. The biggest risk is the spread of the Delta variant of COVID-19, or the emergence of other more powerful mutations. Another risk is accelerating inflation, which is likely to force central banks in the world’s major economies to raise interest rates sooner or later, which would have a negative impact on economic growth.
The US Federal Reserve has not yet raised interest rates. Central bankers believe that the recovery in the labour market is not yet sufficient and there is still time to start fighting inflation. Nevertheless, a US interest rate hike can be expected later this year.
Chinese technology stocks have taken a hit from the Chinese government, which is exerting further regulatory pressure on these companies in order to keep this segment under control. This particularly scares US hedge funds, who are reducing their investment positions in Chinese technology stocks.