Macroeconomic update by François Duhen

The global economic recovery is proceeding at a pace that is sufficiently sustained so as not to cause concern, but nowhere near to being so frenetic as to fuel fears of a premature tightening of monetary policies. Central banks continue to hammer home their message of short-term caution, particularly stressing the purely transitory nature of the inflation peak expected over the coming months and thus contributing to putting downward pressure on sovereign yields. However, some central bankers’ statements are beginning to pave the way for a change in strategy by mentioning the need to discuss a gradual reduction in their support once the economic rebound is well underway. The latter continues to be fuelled by the ramping up of vaccination and the gradual lifting of health measures, but also by the extension of government support.

The health situation continues to improve in Europe despite some nascent concerns about the spread of the Indian variant, particularly in the UK. Said variant is prompting governments to maintain travel restrictions for the time being, although the marked acceleration of vaccination in the European Union suggests that these measures will be further eased ahead of the summer season. Pending the complete disappearance of the health risk, member states remain determined to support activity for as long as necessary, particularly thanks to the validation of the €750bn European recovery plan by the European parliaments (the funds for which will be distributed as of July), but also thanks to the suspension of European budgetary rules until 2023 as confirmed by the European Commission. Countries are especially encouraged to take advantage of this given that financing conditions remain very favourable within the euro zone, the ECB having managed to prove convincing in its ability to remain cautious for a long time to come. This is reflected in the successful stabilisation of European sovereign yields while asset purchases remain at relatively high levels, at a time when the equity markets are taking advantage of this to pursue their upward momentum, as in the case of the Stoxx Europe 600, which is now above the 450-point threshold.

The improvement in the health situation has also been confirmed in the United States thanks to the headway made in vaccination, prompting the individual states to progressively ease the restrictions in place. However, the economic recovery is still very gradual, as shown by the disappointing employment figures for April and May, which confirmed the absence of overheating in the US economy at this stage and thus helped to significantly reduce inflationary fears. Expectations of a hasty tightening of the Fed's monetary policy were therefore revised downwards, leading to a further decline in US sovereign yields and a relatively pronounced depreciation of the dollar against the euro, towards €1=$1.22. In addition, note that negotiations are continuing between Democrats and Republicans on the infrastructure plan, the latter having formulated a new offer of nearly $1,000bn, which Joe Biden has deemed insufficient. In order to obtain Republican support, the US President has proposed to be potentially more flexible regarding the increase of the corporate tax rate, after the G7 members took an initial step at the beginning of June towards a minimum threshold of 15% on all multinationals.
Fears of a resurgence of the epidemic have resurfaced in Asian countries, prompting many regions to implement new health measures, such as Japan, Taiwan and Singapore to control the spread of the epidemic, while the health situation in India is tending to improve. Note that relations between China and the US remain tense, with Joe Biden having added new Chinese companies to the US blacklist. The yuan rose to its highest level in three years, buoyed by the weak dollar and expectations of reduced support from the Chinese central bank.

With regard to commodities, the price of Brent crude oil broke through the $70/b threshold for the first time since 2019, driven by the acceleration of demand on the eve of the summer season, the loss of momentum in the Iran-US nuclear talks and the intention of OPEC+ to increase its production with a time lag, as stated at its last summit. Finally, the upward momentum of industrial metals has stalled in recent weeks, penalised by the measures taken to curb speculation by the Chinese authorities, while also implying that they could reduce their imports in light of soaring prices.