Macro Outlook

[MongiIG]

 Delta variant worries but markets mostly watch monetary policy and inflation 

 

 

While the Delta variant has been spreading for several months now, investors now seem to be worried about the consequences for the recovery of economic growth. 

 

Indeed, the number of cases in Asia but also in the United Kingdom or in other countries where vaccination campaigns are going well, could lead governments to order new restrictions,  or even  targeted lockdowns. Australia has also just announced that a third region is entering lockdown and that the one decided in Sydney will be postponed, although  it was due to end today. 

 

The number of daily cases at the global level published yesterday shows a high since last May, according to data from Johns Hopkins University. 

 

Beyond the epidemic, it is the inflation data that  worries investors, as the general rise in prices continues to accelerate and should lead, sooner or later,  central banks to act to  prevent an explosion of it. 

 

To this end, we will follow the monetary policy decision of the European Central Bank on Thursday. Christine Lagarde will have to try to reassure the markets about the transitional effect of the rise in inflation,  in order to justify a monetary policy that is still very accommodative, essential to the continuation of the upward trend in the markets over the past year. 

 

The next FOMC will take place next week, followed by   household consumer price  data.  A tense week is to be expected for markets. 

 

This week other data will be closely monitored, with the manufacturing PMIs in both Europe and the United States and these could show a slight slowdown, although still firmly in expansion territory. 

 

In the oil market, yesterday's sharp drop due to investor concern about the rise in the number of cases of the Delta variant  coinciding with the announcement of the agreement on the Opec+ production increase seems to be calming down today. 

 

But if the risks regarding the epidemic continue, it could lead to a further decline, as supply increases (OPEC+ agreement) and demand could  find itself under pressure (Variant Delta) naturally leading to a downward price balancing. 

 

On another topic, we will be paying attention to earnings season,  as many S&P500 companies will release their figures for the first half of this week, including Netflix and Philip Morris on Tuesday, Johnson and Johnson, Coca-cola and Verizon communications on Wednesday or Intel, AT&T, American Express and Twitter on Thursday. 

 

But next week will be the most intensive regarding  earnings, with nearly 50% of the S&P500 in terms of capitalization publishing  their  results. Remember that next week will also be the week of the Fed's monetary policy decision and the PCE figures. 

 

Finally, the cryptocurrency market will be monitored with great attention. The break of the $30,000 threshold, which kept hope of a possible rebound in the short term, has just been broken and this could lead to a sharp acceleration towards the $20,000 target. 

 

The break of the $ 28,800,  which served 2 times of support on the BTC, will be the important test and its crossing should lead to a return to the old historical high observed in 2017. 

 

 

Vincent BOY 

Market Analyst Paris, 20 July  2021

IG France