Equities experienced choppy trading, as the midweek Federal Reserve meeting dominated the narrative for market participants. The much talked about inflation expectations were again at the fore of the conversation with the market interpreting a slight change in tone from Fed officials. As expected, there was no significant policy changes at the meeting, as the committee unanimously voted to keep rates unchanged from the current 0%-0.25% level. Monthly fixed income purchases are also to continue at the rate of $120bn per month. However, what really caught the attention was a shift in the Fed’s ‘dot plot’. This essentially forecasts the level each committee member believes interest rates will be at over the next few years. Following the latest meeting 13 of the 18 committee members now see higher interest rates before the end of 2023. Although that is still some distance into the future the market is likely to grapple with this prospect over the coming months.


It was also a busy week overall for economic releases, with U.S. retail sales falling 1.3% in May, slightly more than forecast. However, the blow was softened by a positive revision in the April number. Chinese data showed some signs of a slowing economic expansion, with industrial production and retail sales failing to meet expectations for May. Fixed asset investment and capital spending also came in short. However, these figures should be viewed in the context of the strong rebound seen so far in 2021, and the relative lack of a second COVID wave in mainland China.


Eurozone bond yields initially rose last week as a result of the Federal Reserve meeting. However, more dovish comments from the ECB (perhaps keen to emphasise their own approach and strategy) brought yields lower again. On the other hand, U.K. gilt yields were higher as the Bank of England are seen as more likely to tighten quicker as U.K. inflation rose faster than expected. In terms of COVID related restrictions, the U.K. has delayed its full reopening for 1 month following a rise in ‘delta variant’ cases whilst the likes of France, Germany, and Denmark all continue to ease restrictions. CLICK HERE