We continue to see the global economy accelerating in 2H21 as pandemic headwinds fade and services-sector activity normalizes. The latest data, notably last week’s PMIs, are mixed but on balance support robust growth ahead. Moreover, while certain fiscal supports in the US and Europe will be expiring through 2H21, they should be more than offset by improving macroeconomic conditions—as underscored by last week’s boomy US payroll report. At the same time, underlying rates of core inflation remain near multi-decade highs as supply bottlenecks boost goods pricing while the rapid normalization of the services sector produces a rise in prices from depressed levels. Risks around the Delta wave of the pandemic remain just that—risks. With case counts in the UK having come down significantly, we believe the template bodes well for regions where Delta is still on the rise. With continued progress on vaccinations, any new pandemic-related drags should be a minor hitch in an otherwise robust recovery. Much of the central banking community seems to share our constructive outlook. As several DM central banks begin scaling back accommodation, any hitch in growth from Delta is assumed to be transitory, while there is growing conviction that a robust recovery will keep inflation elevated even after the current spike rolls off. While the focus is on balance sheet policies, rate lift-off—albeit still far down the road—is also creeping into the conversation.

JPMorgan