Market Updates

It seems that adage of ‘never be short a quiet market’ held true recently as European equities saw their tenth consecutive all-time high, their longest run of record high sessions since 1990.

The restart of economic activity is real and broadening. This supports BlackRock’s pro-risk stance and their underweight in government bonds as they believe their low yields don’t reflect the restart’s momentum.

It had seemed like COVID-19 trends in Europe were showing signs of progress, but last week brought further concerns about infection rates in the United States and Asia.

China’s regulatory clampdown on industries such as tutoring and tech has unnerved global investors. BlackRock see little global spillover risk from China’s assertion of greater control over certain industries, even as it potentially leads to market volatility.

Global equities traded weaker overall last week with much of the focus on the latest round of corporate earnings releases, which look good so far and were surprisingly positive. It was also a week where China widened its regulatory net on big technology companies, which weighed on market sentiment.

Market volatility is on the rise, as worries about new virus strains have been exacerbated. Recent swings in market sentiment reflect the unusually wide range of potential outcomes beyond the current economic restart.

BlackRock see China’s recent policy loosening as an important shift to a modestly more supportive stance for the near term, yet don’t expect the overall hawkish bias to change as it is crucial in China’s focus on quality growth in the medium term.

Equity markets in the United States and Europe paused for breath last week as familiar themes dominated. US Federal Reserve (Fed) Chair Jerome Powell’s testimony at Congress was in focus and concerns over the COVID-19 Delta variant remained front and centre.

Investors are contemplating very different potential outcomes beyond the economic restart – leaving markets prone to overreacting to news flow. BlackRock see holding on to a clear medium-term anchor as crucial. The new nominal – a more muted monetary policy response to inflation than in the past – is for them such an anchor, and supports their pro-risk stance.

Even though we saw some selling pressure last week, it’s important to keep the moves in context. With earnings season looming large, some profit-taking in often-crowded positions is not too surprising. We expect market volatility around commentary to be a key theme in the second half of this year.