14th June 2021
The Cambridge Weekly
Hazy as Carbis Bay
The G7 meeting in St. Ives’ Carbis Bay was rightly the centre of attention in the UK last week and looked to centre on Europe’s leaders cosying up to a much more loveable US administration, at the same time as trying not to mention Brexit too much.
For markets, on the other hand, the big meeting happened the previous week, with G7 finance ministers the key participants. Top of the agenda was the Global Minimum Corporation Tax. The headlines talked about agreement on a 15% minimum tax level, but there was (and is) too little detail to know how directly this will affect the after-tax profits of the major global companies in the near or even medium-term. Therefore, the news had little impact on share prices, with European markets hitting new highs over the week. Indeed, the market narrative reversed from “it will be very important” to “this is just another damp squib”.
Markets enter key transition phase
Change is in the air, and after the year-and-a-half we have had, that can only be a good thing. For capital markets – and indeed the public – this year’s key question has been what happens as the virus fades and the global economy thaws. Much of the focus has been on inflation: We know the global economic recovery will result in a glut of price increases, but how big it will be, and how long it will last is dividing opinion (see our other article this week, for example). But inflation is far from the only unknown as we move through this transition phase.
On a wider scale, there are questions over what the post-pandemic economy will look like. We are already in the middle of a strong recovery, and it is reasonable to expect big changes in terms of economic dynamics from the pre-pandemic days. Investors who call this right stand to gain much. The rotation between different investment styles has been strong in markets this year, but commentators are now wondering which sectors will have the best chances, and when.
Is Haldane right on UK inflation?
A sunny couple of weeks has brought some much-needed positivity to the UK, but those hoping for a post-pandemic ‘summer of love’ might be disappointed. We are less than two weeks away from the last stop on the UK government’s roadmap, but a lifting of all restrictions on 21 June is looking somewhat unlikely.
Each of us has our own view on the datapoint that matters. Of course, it is the cabinet ministers’ decision and what ‘matters’ is prospective votes. The datapoint that gets the most airtime is virus cases, which have clearly risen despite another rapid vaccination push. The more transmissible Delta variant now comprises 91% of new infections.