Inflation - ghosts and ghostbusters
25 May 2021, 05:42 GMT+10
Inflation is still very much in focus globally. Investors are nervous that sharply higher inflation will put pressure on central banks to raise interest rates, potentially knocking the global economy and short-circuiting equity markets. After a strong run, most global equity indices pulled back in recent days as risk aversion increased.
This despite most US and European companies reporting unexpectedly strong earnings growth. Of course, markets never move up in a straight line, so a correction every now and then should not by itself be cause for concern. Rather, the question should be whether something fundamental has changed, causing a complete repricing of the outlook. As discussed further below, that does not seem to be the case. Last week the spotlight also turned to domestic inflation, its future trajectory and interest rate implications.
Inflation - ghosts and ghostbusters
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