Macroscope | In China and the US, economic recovery takes a disappointing turn
- The potential for a slowdown in the world’s two largest economies is feeding concerns that global growth may have peaked
- Both countries are also facing another wave of Covid-19 cases. The Delta variant is the biggest risk when it comes to the outlook for any economy
The unexpected provokes the strongest reactions. Markets are no different. Pieces of news that change commonly held expectations tend to set money in motion. For example, a very poor economic data point could be shrugged off by the markets if it was expected and already reflected in prices. It’s the change in expectations relative to consensus that really matters.
A recent case in point is the price of bonds, which have been edging higher, and yields lower (yields move inversely with prices) because much of the recent economic data has been surprising, disappointing expectations.
This has prompted a rally in safe-haven assets, such as US Treasuries, keeping bond yields low (meaning prices are high), and offsetting the forces that would normally drive yields higher, including the potential for stubborn inflation and the tapering of bond purchases by the US Federal Reserve and other central banks.
The flurry of economic data out in recent weeks has substantially disappointed against the consensus forecasts. In the US, a consumer sentiment report for August revealed a big setback in confidence and was followed up by a drop in retail spending.
02:23
Covid-19 returns to China’s Wuhan as Delta variant spreads to 10 provinces
