“Choose to be optimistic it feels better ” Dalai Lama

Leading global equity indexes remain in tight trading ranges and will start the final day of the week retreating from the top end of those ranges. A modestly weaker Wall Street and mixed Asian markets, in particular, Hong Kong as China announced it plans to impose national security legislation on the city.

China and US tensions remain high as Trump once again making public statements blaming China for the pandemic. China begins its annual Chinese People’s Political Consultative Conference. The most important political event in the Chinese calendar year.

A range of US economic data released on Thursday including April’s leading indicators, the May Phili Fed Index, and the flash purchasing manager surveys continue to point to a contracting US economy. On the slightly brighter side, Mortgage applications are almost back to 2019 levels and Moody’s US financial conditions index has materially improved since March.

Equity indexes may have got stuck in ranges but many of the trends that have been part of the recovery in indexes remain in place. Growth continues to outperform value, US equity indexes continue to outperform other developed markets. Understandably companies with strong balance sheets are outperforming those with weaker ones. Possibly slightly counter-intuitively, at a time of zero interest rates, lower-yielding shares are outperforming higher-yielding ones. Technology shares tend not too high dividend yields and as we have seen recently many higher-yielding companies have been forced to cut dividends recently.

As the world starts to get released from its post-Covid lockdown, attention is turning to what the world could look like and how this period will have changed human behavior. Commonly held views are that Taxes are likely to have to rise, levels of debt will remain high and the world may become less “global” as companies bring supply chains closer to home.  Technology will become even more part of our daily lives, less flying around the world when you can now Zoom or Team meet someone. Although having a Zoom meeting never feels quite the same as meeting someone face to face. Populism and protectionism will continue to grow. All of these changes themselves could have negative impacts on economic growth in the coming years. The development of the global economy, lower trade barriers have all helped assist this period of expansion and low inflation we have enjoyed for over 20 years.

Inflation rates have remained low during this period, and although many economists see changes in economic behavior that has contributed to this world of low inflation changing. They, by and large, remain convinced inflation in the global economy is not a threat.