Volatility has returned as a consequence of inflation concerns which caused markets to slide for the first half of the week. US equities fell 4% by Wednesday’s close before bouncing back in the second half to finish the week down by only 1.4%. Despite market data suggesting a return of inflation, the Federal Reserve interjected by saying the choppy economic signals are a result of temporary dislocations caused by the pandemic and the road to recovery. The Central Bank reiterated its opinion that no monetary policies are expected to change as a result of the heightened inflation fears.

The FTSE 100 reflected a similar performance to its US counterpart with a week of two halves. The index posted a fall of 1.2% due to fears of interest rate hikes following a rise in GDP figures although the late-week recovery could be attributed to England taking the next step in its lockdown easing this week. With that said, most of Europe highlighted their concerns of the new Indian variant of Covid-19 causing some potential problems in the near future although officials are confident that vaccines should still protect against the variant.

Outside of equities, the inflation figures resulted in a sell off of government bonds causing yields to rise for core eurozone bond, US Treasuries and UK gilts. The European Central Bank has plans to reduce its bond purchasing which was a key driver for the push in European bond yields.