Recently global marketplaces gave up some of the previous gains as stronger-than-expected job numbers in the US rekindled fears of tighter monetary conditions from the Fed and a possible recession.

Stateside the economic data has been solid, with the ISM manufacturing index rebounding in May as proof of continued brisk demand. The unemployment rate was unchanged at 3.6%. The average hourly wage was up by 0.3%, helping employees offset some of the price increases but not signaling an additional overheating in wages.

While the data is positive, it may also prompt the Fed to be more hawkish. The market now expects rate hikes of 0.5% at the next three policy meetings, topped off with a quarter-point increase in November.

Yields on 10-year US Treasuries advanced to more than 3% on Monday amid expectations for impending rate hikes and upcoming inflation data, which cooled demand in the equity market. The markets are still scared about inflation and the reaction of central banks to inflationary pressures that just will not go away.

Inflation – which has soared to a record 8.1% year-on-year in the Eurozone – was galvanized by the surge in energy prices amid the conflict in Ukraine. This is now also spreading to other price categories. The prices of food, alcohol and tobacco increased by 7.5%, while core inflation, which strips out energy and food, climbed to 4.4%. This broad increase is likely to prompt the European Central Bank (ECB) to lift rates by 0.25% in July, probably reaching positive territory by the end of the year. The timetable will probably be revealed on Thursday in the statement following the ECB meeting. Yields have risen further in response to inflation. The return on Germany’s 2-year sovereign attained a 10-year high at 0.65%, while the yield on 10-year paper rose to 1.31%.

Despite the headwinds, the global economy remains in an expansionary state, with estimated growth of 3%. Positive signs are beginning to emerge suggesting that inflation may have peaked. The end to lockdowns in China combined with government support measures are set to revive consumer spending.

On a global scale, the backlog of savings should help absorb some of the price rises and support business trends.

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