Author: Stephen Borg, Head of Private Clients at Calamatta Cuschieri

Last week’s market action was one of the busiest so far this summer, with a slew of corporate earnings announcements, important economic data releases, a highly anticipated Fed meeting and another regulatory-induced sell-off in Chinese equities. There was a lot of push and pull with equities finishing slightly lower to where they started the week, but still near all-time highs. In terms of economic data, the initial estimate of second-quarter GDP showed that US economic activity reclaimed its pre-pandemic peak and accelerated from the first quarter. Nonetheless, the 6.5 per cent annualised reading was meaningfully slower that the 8.4 per…

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In economic theory, inflation is generally regarded as having an adverse impact on government debt because it erodes the purchasing power of a bond’s future cash flows, making coupon payments and the returns on principal less valuable amid an uptrend in pricing pressure. That is why evidence of inflation usually leads to selling in bonds, pushing yields, which move opposite to prices, higher.  However, lately, it seems the bond market is not following the script many had expected this summer, which would have seen interest rates rising on the back of a booming economy. Instead, yields on longer-dated Treasuries have…

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China’s regulatory authorities have sent shockwaves through financial markets last week with plans to tighten restrictions on Chinese companies listed in the US, which are overwhelmingly technology companies. This so called Chinese American Depositary Receipts (ADRs) market consists roughly of 248 Chinese companies with a combined market valuation of $1.7 trillion. The value of this market, which incorporates China’s most powerful companies such as Alibaba, Tencent and Meituan is trading at its lowest level in over a year at a time when major US tech giants continue to hit record highs. Regulatory fears over China’s technology companies resurfaced in recent…

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Equity markets continued the upward trajectory in the second quarter, as vaccination campaigns continued to accelerate in most developed economies, especially in Europe, which is now catching up with the UK and the US. In contrast, emerging economies continued to lag on the vaccination front but cases seem to have peaked in India where number were running at dangerously high levels a couple of weeks ago.  The yield on the 10-year US Treasury dropped by 30 basis points over the three-month period to settle at 1.44 per cent at the end of June. This decline helped growth stocks to stage…

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A hawkish shift from the US Federal Reserve in its last meeting on June 16 has focused attention once again on the shape of the curve which ultimately is said to reflect the expected trajectory of the economy. The yield curve normally has an arcing, upward slope because investors expect more compensation for taking on the added risk of owning government debt as maturities grow longer. If the gap between yields at the shorter-maturity, usually measured by the two-year interest rate, and longer-term debt as reflected by the ten-year rate, widens substantially, the yield curve is said to be steeping…

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The last 12 months have been truly remarkable for most commodity investors as vast amounts of stimulus, economies reopening from the pandemic and strong Chinese demand have driven a surge in raw-materials prices recently, some to record highs. Industrial metals, energy, most agricultural commodities and lumber have all enjoyed extraordinary price gains, fueling a debate about whether raw materials are in a new super cycle. Yet they have slumped in the past two weeks, with some wiping out gains for the year on the back of a more hawkish US monetary policy tone and a consequent rise the US dollar,…

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