Week in review

• Eurozone industrial production fell 1% m/m
• U.S. June PPI rose 7.3% y/y
• China 2Q21 GDP rose 7.9% y/y

Week ahead

• U.S. housing starts, existing home sales, mfg. and services PMI
• Japan CPI
• Eurozone PMI composite, monetary policy decision

Thought of the week

The U.S. Consumer Price Index surged 5.3% in June, driven mainly by a sharp 10.5% rise in used car prices, and a continued rise in travel and tourism prices such as airfares and lodging. Although the inflation was higher than expected, the market reaction to the data was relatively modest. This could be because the run-up in inflation has been dominated by categories that the Federal Reserve and most investors believe are driven by transitory factors, such as semiconductor supply chain issues and pent-up COVID-19 spending. While some of these transitory factors may fade away, our view is that the U.S. inflation may be stickier than currently appreciated given the potential for further fiscal stimulus, the improving labor market and above-trend growth expected in the coming year. This would lead to a gradual rise in longer-dated bond yields over the rest of this year and the next year. Against this backdrop, investors should see a resumption of a rotation towards value and cyclical stocks.

U.S. CPI inflation

%, year-over-year change

Source: U.S. Department of Labor, J.P. Morgan Asset Management. Data reflect most recently available as of 16/07/21.

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