Despite concerns around the new Delta variant in the UK, Vaccine news continued to be positive throughout May. Developed nations continued their successful rollouts, and the worst effected countries such as India, also increased the pace. India are now only behind China and the US in terms of vaccinations administered, this progress, along with the relatively young population, is certainly positive for the outlook of India. It was also confirmed at the recent G7 Summit, that the members would pledge 1 billion doses to poorer nations, which will be beneficial for emerging markets more generally.

The principal driver for markets through the month remained fears around the path for inflation and the potential for a policy error from central banks in response. Fresh data continues to highlight higher than expected inflation although the comparisons with 2020 (so called base effects) and conflicting numbers in terms of unemployment and job availability severely muddied the waters. Businesses have been struggling to fill positions and yet there appears to be more people looking for work than before the pandemic. The potential tightening in labour markets, particularly in the UK where post Brexit migration has almost certainly reduced the labour force, could also have implications for rising wages, supporting higher inflation in the long run. In contrast, the initial burst of consumer spending and optimism faded somewhat, despite remaining positive, and commodity prices also fell back from their recent highs. Bottlenecks and supply issues remain, but the market is more confident these will be worked out of the system in good time. As a result, markets drifted higher through the month, trusting the promise of the US Federal Reserve to raise rates slowly but watchful of “transitory” inflation becoming more entrenched.

Looking forward, the market remains focused on the Fed who have acknowledged the need to ‘talk about talking about tapering’ bond purchases at some point. This is seen as removing a key plank of support for the markets and the timing and communication will be crucial how the news is received