Commentary on financial market developments – August 2021
Highlights:
- Delta mutation of COVID-19 disease
- USA: year-on-year inflation +5.4%!
Commentary:
Developed equity markets notched further gains in August, despite high inflation, pandemic-damaged buyer-supplier linkages and rising incidence of delta COVID-19 mutation disease. The gold price was flat, ending the month at $1813.62/oz. The long-term upward trend in the price of crude oil stalled over the summer and even in August the price of Brent crude oil weakened to a final USD 72.99/bbl.
The problems of the world economy did not end with the discovery of the vaccine against COVID-19. And so the issue keeps coming back and influencing developments in the capital and commodity markets. Currently, the greatest concern is the spread of the delta variant. Developed countries should not be affected as much by this wave, due to the higher vaccination coverage of the population, but there are concerns about emerging countries, led by China. If the pandemic were to re-emerge in these countries, then supply chains would take another hit and world trade would again shrink significantly. The question is how individual economies would cope when national debt levels have risen significantly in a pandemic.
Another threat to capital markets is high inflation. The annual inflation rate in the US is at +5.4% and in the long stagnant Eurozone already at +2.2%! While month-on-month inflation is slowing, and so it is possible that inflation has already peaked, central banks will still have to abandon quantitative easing and raise interest rates. However, monetary restrictions are always a negative pricing factor for equity markets.
The sell-off in Chinese technology stocks continues. This is due to further intervention by the regulator, which published draft rules banning unfair competition between national online platform operators. On the one hand, these rules strengthen the protection of intellectual property, reputation and brand, on the other hand, they allow for greater government intervention in the Chinese tech world. As a result, the US Securities and Exchange Commission has issued a warning against investing in Chinese stocks. Slightly more comical are the Chinese government’s efforts to limit the time spent playing computer games by children and young people. Minors will only be allowed to play for 3 hours a week. Everything will be supervised by the competent authorities, who will control the operators of online games.