Equities in both China and Hong Kong have fallen heavily so far this week as China’s President, Xi Jinping, continues to clampdown on the power of big Chinese companies.

It has been a volatile start to the week, on Monday most global equity markets continued last week’s slide, on concerns around coronavirus infection rates.

Inflation was back in focus yesterday (13 July 2021) following the release of US CPI inflation data for June. From a headline perspective, the US CPI inflation reading of 5.4%, for the year to June, came in above expectations of 4.9% and the May reading of 5%.

Although last week’s US employment data showed that the US economy is heading in the right direction, it failed to provide us with the evidence that the US economy is making sufficient progress to justify the Fed’s recent dramatic dot plot shift.

We have had an uneventful start to the week as global equity markets wait for Friday’s (2 July 2021) US employment data.

After last week’s hawkish ‘dot plot’ surprise from the US central bank, we said markets were getting way ahead of themselves as it was far too early to conclude that the current economic reflation is over and that we will see significantly higher interest rates in the coming years.

Despite a number of economic data releases, global equity markets have effectively gone nowhere so far this week as everyone is waiting for the conclusion of this evening’s Fed monetary policy.

There has been no significant economic data releases so far this week, and given inflation continues to be the hot topic, all eyes are on the US CPI inflation reading which will be released later today.

The inflation outlook remains the big theme this week ahead of Friday’s US core PCE data release (the Fed’s preferred inflation measure).

Last week’s inflation theme remains front and centre of attention – and unfortunately, that has hurt global equity market sentiment.