Analysis of today's markets

Enrique Marazuela, CFA CAd, director of investments at BBVA Private Banking.

The pandemic continues to make headlines

05/17/2021

We open this review with our outlook for the pandemic, since, while our view that it will be eradicated by the end of 2021 is still just a hypothesis, we believe it is well-founded, but it remains an opinion in an uncertain situation. Despite the terrible news coming out of India and Latin America, the situation does not seem to be getting any worse in either region. The West is reporting stable figures with a certain tendency toward moderation, most notably in the United Kingdom and the United States. And, on the other hand, vaccinations continue to advance at a much higher rate than in the first quarter. 

The concerns we reflected on last week in the Israeli-Palestinian conflict remain where we left them; let's hope that peace returns as soon as possible and that Yitzhak Rabin's hope comes to pass: reason will prevail. 

On the macroeconomic side, the high inflation figures published keep resonating in the United States, where the indicators continue to show a dynamic recovery. And in Europe, economic agents are showing more confidence in the future, as the German indicator ZEW made clear, which reached its highest level since the start of the pandemic, rising to a level not seen since 2000. 

The markets were rattled last week by news of rising prices in the United States, which, when announced, caused bonds and stocks alike to fall. Although their prices recovered later, it was not enough to neutralize the losses. Contributing to this were the statements from various central banks, especially the Fed, which insisted on the idea that we are facing temporary events and once they are over, inflation will return to more desirable levels. 

And something similar happened with bonds; after the bad news regarding inflation and appeals for calm, the recovery in yields on public bonds and the ensuing fall in prices was largely contained. Paradoxically, the rise in yields was more drastic in Europe than in the United States; peripheral risk premiums grew. 

There were no major movements in commodities, either in precious metals or the remaining materials, although prices creeped upward, as befits a situation with a little more inflation, which is good news for this type of asset.

We maintain our position, overweighted in stocks and underweighted in government bonds, and this despite the good results we have had this year. We believe that the events of 2021 guarantee and reinforce the reasons for investing in stocks and bonds.

In short, we remain concerned about the pandemic, although we are a little more optimistic about it this week; since the data in the emerging world has not worsened significantly. The developed world continues to be a source of good news. We are concerned about the hostilities between Palestinians and Israelis. Taking the macroeconomic center stage last week was inflation, though statements from central bank officials cushioned its eventual impact on the markets. Both bonds and shares pulled back last week. We're keeping our position.