Markets inched higher during a week shortened by Monday's observance of the Independence Day holiday.
Although markets ended the week in the green, there was some volatility along the way, particularly on Thursday as fears over the spreading Delta variant spread. Additionally, tech stocks were in the news after comments from President Biden suggested regulators should promote more competition between firms and China cracked down on tech firms listing shares abroad. Meanwhile, oil prices hit a six year high as OPEC+ discussions broke down, leaving no expectation for an increase in production. Lastly, central banks abroad signaled continued loose monetary policy despite some concerns about inflation.
Are Central Banks Actually Concerned About Inflation?
The rise in prices has been a big topic recently including at the Fed which has discussed trying to balance aggressive monetary policy during the recovery and rising inflation. Prices have surged in many areas recently but the Federal Reserve has mostly call these "transitionary pressures" caused by the economy reopening as well as shortages resulting from lingering effects of the pandemic.This week saw foreign central banks signal similar views. China eased policy by reducing the required reserves for banks. A move that hardly signals fears of an overheating economy or rising inflation. Additionally, the European Central Bank said that it will tolerate an inflation overshoot as it continues loose monetary policy measures.
Both moves are strong signals that policymakers are still primarily concerned with recovering from the coronavirus pandemic as unemployment remains higher than normal. In the U.S. unemployment sits at 5.9% with initial claims nearly double what they were before the pandemic (373,000 this past week compared to just over 200,000 in early February 2020). It seems that until higher inflation is seen and/or more data is provided showing it isn't primarily due to transitionary pressures, central banks will maintain loose policies to help their respective economies recover.
Should Big Tech Be Concerned?
Tech stocks remained in the news this week as some regulatory pressures were put on the sector from various sources. China continued its crackdown in tech companies that list shares abroad. Didi Global (DIDI) was hit the hardest as its shares tumbled after China ordered it removed from app stores early in the week until it finally recovering some losses Friday.The crackdown will no doubt have a large impact on many Chinese tech firms but recent comments from President Biden put the focus back on U.S. regulations. Biden suggested regulators should do more to promote competition between tech companies as he signed an Executive Order on Friday. The new order is supposed to encourage federal agencies to more closely scrutinize the tech industry. Biden's orders also look at competititon in other industries such as suggesting regulators look into high fees charged by shipping companies during the shipping shortage.
The order is a good first step toward reducing the market power of big tech firms such as Alphabet (GOOG), Facebook (FB), Apple (AAPL), and Microsoft (MSFT) with a focus on reducing barriers to entry among many other efforts. While increased competition in a sector dominated by big names is supported by many, it will have to be seen how effective any new policies will be in actually reducing market power from big tech.
Delta Variant
While markets rose this week, the recent rise of the Delta variant of coronavirus tempered some growth expectations. Pfizer (PFE) has already stated it will pursue a booster shot to target the variant, although that was quickly shot down by the FDA who said no booster shots are needed. Scientists were somewhat critical of the announcement as studies from the U.K. and Canada showed the Pfizer vaccine to be roughly 87% effective against the new strain. The Canadian study also showed Moderna’s (MRNA) vaccine to be 72% effective after just the first dose. More tests will need to be run but early evidence suggests that the vaccines are significantly effective against the new variant.All that said, the S&P 500 rose 0.40%, the Dow Jones Industrial Average gained 0.24%, and the NASDAQ added 0.43%.