Economic data worldwide continues to point to rebound: UBS

According to analysts from UBS, the economic data globally is strong, without pointing to overheating. US nonfarm payrolls increased by 559,000 in May, better than in April but still below consensus expectations. 

In Europe, the ECB in June raised its economic growth projections to 4.6 percent this year and 4.7 percent next year, up from 4.0 percent and 4.1 percent, respectively, in March. While the economic rebound in China appears to have peaked earlier, growth remains robust. Following record first-quarter GDP growth of 18.3 percent y/y, the Chinese economy is on track for more than 7 percent growth in the second quarter.

UBS expects a continuation of this benign backdrop for equities, with markets being supported by three main factors. The first of them is a broadening of the global reopening that will support growth and earnings. The US is now well advanced in reopening. UBS sees Europe and the UK playing catchup in the coming months. France lifted its last restrictions on businesses on June 30, ending limits on capacity and crowd size in stores, restaurants, gyms, and cultural establishments, according to the Financial Times. While the UK is still struggling with the more contagious Delta variant of Covid-19, the UK government has indicated it aims for a full lifting of restrictions. 

The inflation worry looks set to fade further. The analysts expect the May data to represent a peak in US inflation, as the boosts from base effects and higher energy prices are ebbing. Finally, disruptions related to the pandemic and reopening should also moderate as supply chains and demand patterns normalize. Exceptional gains in certain categories of goods – notably, second-hand cars, where prices were lifted in part by an aversion to public transport during the pandemic – look set to fade as well, becoming a drag as prices normalize. Meanwhile, inflation may peak later in the Eurozone, but inflation pressures are not taking off. This should provide confirmation for investors that central bankers will not be forced into a premature withdrawal of stimulus that would unnerve markets.

Central bank messaging will likely remain supportive. In June central bankers generally succeeded in striking a balance between preparing markets for an eventual withdrawal of stimulus, while providing reassurance that this process was some way off. UBS expects central banks to continue this messaging. 

(WBJ)