Cash & Liquidity Management
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Dollar Excess Drives Spike in Fed Reverse Repo Facility Demand

Northern Trust Asset Management Monthly Market Commentary for May 2021

Eurozone Market Update

The European Union’s vaccine rollout is progressing well, with around 46% of the adult population receiving at least one dose. Measures to reopen tourism are being discussed which would help an economic rebound, particularly for southern European countries that rely on it. The European Commission revised up its economic growth forecasts for the Eurozone to 4.3% for 2021 and to 4.4% in 2022 (both 3.8% previously). Contrary to the European Central Bank's forecasts, the market is pricing in the risk that inflation will continue to post higher than expectations. The five-year forward inflation expectation rate reached a peak of 1.64% mid-month, but importantly this is still below the central bank’s 2% target and comments from its members remain dovish.

UK Market Update

As expected, the Bank of England (BoE) left its policy unchanged at the May meeting. There was a technical taper to the weekly pace of purchases from £4.4 billion to £3.4 billion a week in the BoE's closed-end quantitative easing programme, but the bank’s overall commitment to asset purchases hasn’t changed. The Monetary Policy Committee voted unanimously to keep the interest rate at 0.10% and voted 8-1 to maintain the same level of asset purchases. The BoE also accelerated its economic growth forecast with the faster progress of the Covid-19 vaccine rollout. Still, the committee was more cautious around its inflation projections, which are below their 2% long-term target. It continued to stress the temporary nature of the above-target inflation levels, which are mostly attributed to energy prices.