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Fast and furious first half of 2021 keeps financial markets at full throttle

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LONDON – After unprecedented pandemic-driven swings in global financial markets last year, 2021 was never going to be boring, and it has proven so.

Vaccine programs and some of the biggest fiscal and central bank stimulus ever seen have had an attractive display.

Oil’s 45% rise will be the best start to a year since 2009, global stocks are on track for their second-best first half since 1998, lumber is on fire, and stock ‘memes’ from hobbyist traders AMC and GameStop they have risen more than 2,500% and 1,000% respectively.

Add to that another wild run for bitcoin, digital art that sells for tens of millions of dollars despite being free on the internet, and big spins on the government bond markets and you start to get the picture.

“It has been an extremely dramatic year,” said SEB’s chief investment management asset allocation Hans Peterson. “The changes have been absolutely huge. It has not been an easy year, it has been quite tumultuous. “

Global equities have posted an 11% gain, but the major US and German government bond markets have had their toughest first half since 2013 despite better recent months.

Bank of America analysts estimate that US President Joe Biden’s spending plans raise the current tally of global fiscal and monetary stimulus over the past 15 months to $ 30.5 trillion, an amount equivalent to the economies of China and Europe. together.

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Central banks alone have bought $ 0.9 billion of financial assets per hour. That has fueled a $ 54 trillion surge in global equity values, but it also means that US inflation is now annualizing 8% compared to an average of 3% over the past 100 years.

“The spirit of the era in the first half has been the US fiscal stimulus and its relationship with the bond markets,” said Eric Theoret, global macrostraga at Manulife Investment Management, adding that it would also be crucial going forward.

HOT OIL

Other seismic movements have been the increase in oil, the 20% increase in copper and a jump from 30% to 40% in wood and staple foods such as corn and soybeans that is fueling inflation as well as other markets.

Oil’s hot run has made the Canadian dollar and the Russian ruble perform better. Metals have helped lift the South African rand, but not the Australian dollar. The British pound has performed well thanks to the UK’s rapid COVID vaccine launch schedule, while the Japanese yen and the euro, where progress on the inoculation front has been slower, have fallen by 6, 7% and 2.5% respectively.

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ROYAL TURN

Emerging markets have also seen big moves. Brazil’s race to raise interest rates in recent months has seen its currency go from the worst performing in the world at the end of the first quarter to the best, now up 5.5%.

At the other end of the table, Colombia and Peru have been hit by political uncertainty and Turkey’s lira has followed the 20% beating from last year with an additional 14% drop.

Surprisingly, the lira performed the best in the world for the first six weeks of 2021. Then bond yields and energy prices rose and President Tayyip Erdogan fired another central banker.

Things have been even wilder in the crypto markets, where bitcoin soared from $ 29,000 to just $ 65,000 in April, only to fall back to $ 36,000 as countries like China tightened regulations.

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An explosion of non-fungible tokens (NFTs), a type of crypto asset used to track the ownership of intangible digital assets such as images, videos, and music, caused a digital collage to hit $ 69.3 million in March, while the first Twitter boss Jack Dorsey’s tweet sold for $ 2.9 million in NFT form.

Since their peaks at the beginning of the year, innovation-linked funds or stocks (ARK Innovation Fund, Tesla, solar energy stocks, BioTech stocks, and special purpose acquisition companies, or SPACs) are down between 15% and 30%. %, although there has also been a rebound since May. .

The FAANGS quintet of Facebook, Amazon, Apple, Netflix and Google have risen 10% this month for example.

“We are in a very unusual recovery, of course,” said Vincent Manuel, chief investment officer at Indosuez Wealth Management, adding that many investors were scratching their heads as to why 10-year Treasury yields had fallen back. to 1.5% after the Fed. It boosted expectations of a rate hike in the US.

“There is a paradox,” said Matt King, a strategist at Citi. “The more successful the Fed and the other central banks have been in pushing everything, the more dependent the markets have become on continuing that flow of liquidity.”

(Additional reports and graphics by Thyagaraju Adinarayan and Elizabeth Howcroft; Editing by Kirsten Donovan)

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In-depth reports on the economics of innovation from The Logic, presented in association with the Financial Post.

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