Northern Trust Asset Management Monthly Market Commentary for July 2021 - Exclusive Insight for TMI Subscribers
Eurozone Market Update
At its monetary policy meeting, the European Central Bank left its main policy measures unchanged and reiterated their expectations that purchases under the Pandemic Emergency Purchase Programme over the current quarter will be at a significantly higher pace than at the start of the year, based on financing conditions and the inflation outlook. Importantly, adjustments to the wording of the forward guidance, to align with the new symmetric 2% inflation target, introduced three key criteria for hiking rates: 1) inflation reaches 2%, 2) inflation stays durably above 2% of forecast horizon, and 3) inflation stabilises at 2% over the medium-term. In the long-term, forecasts indicate that inflation will remain well below 2% (see Chart of the month), which indicates that rate hikes are a long way off.
UK Market Update
With no Bank of England (BofE) Monetary Policy Committee (MPC) meeting, the market focused on speeches from MPC members. Initially, hawkish comments by BofE's Dave Ramsden and Michael Saunders resulted in a short sterling selloff. However, the following week, comments by more dovish committee members Jonathan Haskel, Ben Broadbent and new member Catherine Mann reversed these moves, as they see high inflation subsiding. The current BofE stance is based on the labour market and with the furlough scheme winding up in September it is likely they would have to wait until February 2022 to assess the unemployment level before acting. We will see whether the hawkish comments turn into anything more at the next meeting.
US Market Update
As expected, there were no monetary policy changes at July's Federal Open Market Committee meeting, but market consensus was that it began the process of teeing up tapering. On the "substantial further progress" criteria required for commencing tapering, the post-meeting statement noted that "…the economy has made progress towards these goals…" However, Federal Reserve Chair Jerome Powell acknowledged that there remains further to go. He also indicated that Fed policymakers had carried out a "first deep dive" into how tapering might be carried out, but noted that divisions remain. Powell essentially re-emphasised what we already knew: Current inflation strength isn't enough by itself to tighten monetary policy and they will closely watch employment data before they act.
Global Outlook
We expect the summer lull in the markets will continue and issuance to be benign through the month ahead. Central banks will likely be quiet, with only the BofE holding a scheduled meeting this month. We will be watching carefully to see if the bank’s MPC members Ramsden and Saunders follow through with their hawkish comments from July and vote for a reduction in asset purchases, but the market is uncertain this will happen. At the end of August is the annual Economic Policy Symposium at Jackson Hole, Wyoming, where the market receives insights into central bank thinking regarding the economy and monetary policy. With this year’s event titled “Macroeconomic Policy in an Uneven Economy,” we will be eagerly watching what transpires.
Chart of the Month: Europe's Rate Hike Expectations Signal "A Long Way Off"
For Europe and Asia-Pacific markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. Northern Trust and its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, and its accuracy and completeness are not guaranteed. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Opinions and forecasts discussed are those of the author, do not necessarily reflect the views of Northern Trust and are subject to change without notice.
This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.
Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
The Northern Trust Company of Hong Kong Limited (TNTCHK) is regulated by the Hong Kong Securities and Futures Commission. In Australia, TNTCHK is exempt from the requirement to hold an Australian Financial Services Licence under the Corporations Act. TNTCHK is authorized and regulated by the SFC under Hong Kong laws, which differ from Australian laws. In Singapore, The Northern Trust Company of Hong Kong Limited (TNTCHK), Northern Trust Global Investments Limited (NTGIL), and Northern Trust Investments, Inc. are exempt from the requirement to hold a Financial Adviser’s Licence under the Financial Advisers Act and a Capital Markets Services Licence under the Securities and Futures Act with respect to the provision of certain financial advisory services and fund management activities.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc. Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K, NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Belvedere Advisors LLC and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company. © 2021 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A.
