US GDP growth in the first quarter came in at a healthy 6.4%, underscoring strong economic growth so far for 2021. Price pressures, however, were higher than expected, with the price deflator, which measures price changes, and consumption prices both coming in higher than original estimates. Personal spending continued to grow in April, albeit moderately, as consumer incomes fell -13%, after rising by 20% in March. Overall, the numbers tend to confirm our 6.5% real US growth forecast for 2021. Federal Reserve officials continued to push back against the threat of inflation, encouraging calm in bond markets and providing a boost for equities. For the bond outlook, we will be monitoring Friday’s US employment numbers, given the Fed’s focus on employment growth and consumption.
In Europe, all 27 EU members have now accepted the Own Resources Decision, effectively unlocking the funds of the Next Generation EU recovery plan. This is good news for the EU, which now joins the league of countries implementing fiscal stimulus. The economic momentum should shift from the US to Europe in the second half of the year as a result, allowing the euro to rise against the US dollar. The greenback has already weakened recently as real US rates continue to decline. European equities hit all-time highs twice last week. Meanwhile, the European Medicines Agency approved the Pfizer covid vaccine for 12-15 year-olds, which should accelerate progress toward herd immunity. In a gloomier development, after seven years, the Swiss Federal Council terminated negotiations with the EU over a framework institutional agreement. As a result, there will no new bilateral agreements and existing ones will not be renewed unless things change.
Chinese authorities signalled a crackdown on “excessive speculation” last week. After a previous Chinese leadership announcement drove down Bitcoin, commodities prices took the hit in the wake of this news. Chinese banks have been instructed not to sell commodity-related products to retail investors to avoid adding financial demand onto already scarce supplies in this sector. In the week ahead, OPEC could consider the potential return of Iranian production at its meeting. We remain positive on commodities. We also continue to favour event-driven hedge fund managers, as strong M&A activity continues, including Amazon’s purchase of MGM last week.