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Another week of mixed messages in mid-July

The third week of July saw numerous countries wrestling with severe drought while others, among them China and Germany, counted the costs of massive floods. In the US, where looking-to-hire signs are proliferating in business districts across the country, first-time jobless claims climbed. New cases of Covid-19 worldwide are again north of 500,000 a day but the ratio of deaths has fallen from one in every 42 cases at the end of January to one in every 65 cases.

With the needles for many key datapoints swinging rapidly in often contradictory directions, flows to EPFR-tracked funds remained choppy and subdued. Equity Funds recorded their second smallest inflow year-to-date, redemptions from Alternative Funds jumped to a 16-week high, Bank Loan Funds’ longest inflow streak since 1H17 came to an end and four of the five fund groups tied to cyclical sectors posted an outflow.

In addition to the twin specters of rising inflation and rebounding Covid-19 caseloads, and their potential impact on the global reflation story, some investors are starting to question the degree to which pent-up consumer demand will drive growth in the second half of the year.

In the US, consumers are spending and starting to take on more debt. Retail redemptions year-to-date from US Money Market Funds stand at over $135 billion. But the enhanced unemployment benefits spigot is being closed and is slated to be largely shut off by September. Retail investors are still steering money into Europe Money Market Funds and savings rates throughout the developed world remain above pre-pandemic levels.

 

 

 

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