This week’s equity market volatility should not have come as too much of a surprise, given the torrid 34% gain from the end of October. It is also taking place at the point when the rate of change in economic growth is starting to decelerate as government support is removed and financial conditions—which have never been easier—may be starting to become less accommodative. The main question was really, what was going to be the catalyst; would it be inflation, COVID, or the Fed? As the behavior of the bond market this week shows, concerns about inflation are clearly not at the top of the list; rather, it is the rapidly rising instances of new COVID infections that seem to have shaken the markets.
In this week’s Economics Weekly, we once again showcase a number of the alternative higher-frequency economic data that have emerged over the last year, in an effort to gauge where we are with regard to the reopening economy and to what degree the markets should be concerned about a moderation in the pace of the expansion due to the COVID variants.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.