As we approach midyear, Covid Speed’s breakneck pace seems to have slowed. Cross-asset markets have paused, with stable stocks, bonds, and FX over the past month. A sense of transition has emerged in the economic outlook: Chinese growth is rolling over, US growth is peaking, Europe is reopening, and emerging markets (EM) are trailing. And the state of Covid, while still bad in EM, is vastly better in developed markets (DM). JP Morgan notes investors need to prepare for a multi-speed world: from early-cycle timing to mid-cycle conditions to late-cycle valuations. I concur.
During this pause, let us pull back and consider the 2H outlook. As we do, we should remember the duelling dualities: physical price pressures versus the ‘digitalization of everything’; ESG financing caps versus energy/mining expansion; equity markets led by the twin engine of value and growth; surging money supply versus inexistent velocity. It is a growing list of intellectual and financial stimulation. How these resolve will help dictate market direction over coming months. When summer ends and we return to (in-person) school and (in-office) jobs, the markets will focus on the year ahead, and 2022 will loom large.
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