Equities Reached Fresh Highs

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At the close of business last Friday, global equities were marginally lower after reaching fresh highs this past week despite hot US inflation numbers.

The yield on the benchmark US 10-year Treasury note declined to 1.32% following dovish US Federal Reserve comments. The price of a barrel of West Texas Intermediate crude oil dropped more than $2, to $71.06, on oversupply fears and reduced demand. Volatility, as measured by the Cboe Volatility Index (VIX), was down to 17.2.



Resurgence of active funds
Actively managed mutual funds collected $155.2 billion in net new money this year. That makes the first six months of 2021 the first half-year period since 2014 in which active funds have recorded positive flows every month. It also marked the first half-year period since the start of 2017 in which flows to active mutual funds have outstripped those of active ETFs.



The Canadian stock market and our dollar are closely tied to the price of oil. This past week, oil declined the most since March as a resurgence of COVID-19 threatened the outlook for global fuel consumption in the near-term. At the same time, crude markets face the prospect of extra supplies from the OPEC+ coalition, as the United Arab Emirates and Saudi Arabia repair a rift that has stymied the group’s decision-making process.

It was a one-two punch for the petroleum complex this past week as the compromise agreement between OPEC+ and the U.A.E. signalled that more supply will be forthcoming to the market. The other factor is the impact of COVID-19 Delta variant, which is a threat to the pace of demand recovery.



Top infectious disease specialists say the spread of the Delta variant across unvaccinated pockets of the US is causing flare-ups and leading to an increase in hospitalizations. The seven-day average of newly confirmed COVID-19 cases in the United States cases climbed to about 23,300 a day, almost double the average from a week ago.

US inflation continues upward momentum
A drop in US Treasury yields is pushing some investors toward other income-generating vehicles, including dividend-paying stocks and emerging market bonds.

US retail sales increased in June as demand for goods remained strong even as spending shifted back to services, bolstering expectations that economic growth accelerated in the second quarter.

Inflation in the United States continued its rapid surge in June, rising at its fastest pace in nearly thirteen years, the US Department of Labor reported. The Consumer Price Index increased 5.4% from a year ago, the largest jump since just before the financial crisis. Economists expected a 5% gain.

If you remove food and energy prices, core CPI rose 4.5%, the sharpest move for that measure since September 1991, and well above the estimate of 3.8%. The Fed and the White House expect the current pressures to begin to ease.

Powell and Yellen calm US inflation fears
US Federal Reserve Chair Jerome Powell said that inflation has notably increased and will likely remain elevated in coming months before moderating. The Fed believes that current price increases are tied to the reopening of the economy and will prove transitory.

Powell added that the US job market has not recovered sufficiently for the central bank to reduce its support for the economy. He restated that ongoing Fed discussions are underway concerning when it might be appropriate to reduce the central bank’s $120 billion in monthly bond purchases. In addition, US Secretary of the Treasury Janet Yellen said that she expects the US economy to see several more months of rapid inflation, although she also expects the recent startling inflation run to ease over time.



The European Central Bank expects to chart a new policy path at its next meeting to reflect its change of strategy and show it is serious about reviving inflation, ECB policymakers said.

Europe reacts to COVID resurgence
Europe is struggling to contain a surge in COVID-19 cases caused by the Delta variant. France, the Netherlands, Greece and Spain all announced new restrictions in a bid to curb the rise in coronavirus infections. Dutch Prime Minister Mark Rutte admitted that restrictions had been lifted too soon. In sharp contrast, the United Kingdom will lift its remaining restrictions July 19th, despite its own infection rate remaining high.

While countries like France and Greece are still struggling to convince people to get the vaccine, other countries are rushing to administer shots to younger people, who are seen as apt to spread the virus through socializing. They are considered to be more vulnerable to the virus given their partially vaccinated or unvaccinated status.

The World Health Organization said that COVID-19 infections are rapidly rising again in the US and Latin America as more contagious variants spread, putting the entire region at risk.



China and the world’s largest steelmaker have established an investment fund focusing on clean-energy projects to help China achieve its carbon-neutrality goals. The fund will pursue investment opportunities in clean energy, green technology, environmental protection and pollution control.

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