“Hope springs eternal in the human breast; Man never Is, but always To be blest. The soul, uneasy, and confin’d from home, Rests and expatiates in a life to come. Alexander Pope

Global equities continue their march higher, as the FTSE 100 looks to break back through 7000, however, still remains over 5pct below where it was before the Covid virus effect. Fed Chair Powell, speaking at the Washington Economic Club, believes the biggest risk to their strong economic growth forecasts is another surge in cases of the virus. America has been opening up its economy sooner than most and there has been a rise in reported cases. The current number of 75000 is well below the peaks of 300,000 but above the average of 60000. This may give us some insight into why the Fed feels comfortable maintaining this strong monetary stance and will do so until they feel the Covid threat has passed. They would appear to be happy to weather a spike in headline inflation rather than risk-taking their foot of the pedal in the event that cases start to rise once again.

Released this week was a report which is published eight times a year, compiled by Federal Reserve Bank, gathers anecdotal information on current economic conditions, commonly known as the Beige Book. This report confirmed the stronger growth we have been seeing and along with that the greater inflationary pressures. What is worth comment is the reaction by the bond market to two pieces of news that confirms inflationary pressures are building. One would normally expect a further selloff by bond investors, however, the flattening of the yield curve which started about a week ago continues. 10 year US treasuries, which not so long ago were yielding 1.75%, now offers just 1.55%. This move has led to a shift back towards tech and away from the more cyclical names, a possible reflection on the pick up in cases in America. It will of course be interesting to see if the number of cases rises in the UK as our economy opens up.

The vaccine program has given a lot of hope to the view the worst may be behind us, however, India’s current situation may suggest why the Federal Reserve remains cautious. India had opened up its economy as new cases fell at the same time ramping up its vaccine program. Admittedly just over 10% of the population have been vaccinated so far but cases of the virus are almost out of control, and are once again introducing restrictions to movement as the number of daily cases is almost 4 times what it was last summer.

Central banks are doing pretty much all they can to support the global economy, there would appear little more they can do should cases spike again and governments feel compelled to shut down parts of the economy again. There may also come a point when the human population will rebel against these enforced restrictions.