Economic data is still offering welcome surprises

In a more muted week for global stock markets, economic data continued to provide investors with upbeat surprises. Meanwhile, with some notable exceptions, herd immunity levels appear to be heading in the right direction.

Key takeaways

• The latest figures suggest that in the UK and US – where vaccination programmes continue apace – around 60% of the population now has some immunity to the COVID-19 virus. With the exception of the recent desperate developments in India, most large economies are on their way towards vaccinating and ultimately containing the spread of the COVID-19 pandemic. Among large developed economies, the UK and US are leading the pack, while Japan is lagging.
• Gaining herd immunity is critical not only to the health of human populations, but also to the health of economies. In turn, it should lead to more consumer confidence and more population mobility – good news for economic activity. Indeed, global data trackers already suggest a rising tide, with economic activity figures proving better than most analysts had expected in both developed and emerging economies.
• Positive recent economic data has included UK retail sales, which bounced back quite strongly in March, demonstrating improvement even before April’s wider retail reopening. Survey data (Purchasing Managers Index) covering the manufacturing and service sectors in various different countries was broadly strong too, while the number of new US jobless claimants fell further.
• In the US, the Biden administration has announced plans to equalise income and capital gains tax (CGT) rates for very high earners (over $1 million per year) – this means doubling CGT for these individuals, and taking marginal income tax from 37% to 39.6%. In turn, this would finance other government spending plans. The US is also set to go greener with carbon emission targets. All of these plans are in line with Biden’s election manifesto.
• Meanwhile, the world’s leading central banks continue to keep liquidity flowing into the financial system, expanding their own balance sheets in the process. Interest rates are very low, and financial markets expect this to continue. Naturally, economic growth expectations will peak at some point, and policymakers will one day reduce their support (though not, we believe, any day soon). We are alive to these issues, but for now, higher risk assets like shares are being well supported by an optimistic economic and market environment.

Weekly market moves

• In a slightly softer week for global stock markets, smaller US companies were the standout performers. Japan was the weakest major market in sterling terms.

• Government bond markets were relatively quiet, as was gold – a traditional ‘safe haven’ asset type.

What to look out for this week

• Central banks in the US and Japan will announce the conclusions of their latest policymaker meetings.

• Corporate earnings season continues, with large publically-listed businesses reporting their recent financial results and offering their predictions for the months ahead. Tesla is due to report this week, alongside an array of technology giants (Apple, Facebook, Microsoft, and Alphabet – Google’s holding company).

• Economic growth data covering the first quarter of 2021 will be released for some sizeable countries, including the US.