Market snapshot: bonds, oil, inflation and the Budget

These are the main issues set to dominate another busy week both here and on Wall Street.

There has been a pause for breath after the bond market sell-off stabilised, although inflation concerns remain near the surface.

However, attention has shifted back, perhaps temporarily, to the immediate positive drivers which could propel a strong economic rebound.

More generally, the success so far of the vaccine rollouts and the pent-up consumer demand which has partly been due to enforced savings are preparing the ground for a spending spree later in the year. In the US, the increasing likelihood of the President’s proposed stimulus package could initiate a strong road to recovery.

Meanwhile, the oil price has resumed its rally on an expected surge in demand as economies find their feet, and is now up by 27% in the year to date. Comments on the supply side are expected at the OPEC meeting later in the week, with any ongoing restrictions likely to underpin the price.

The major US indices have held on to their gains in the year to date, although progress has been trimmed due to the recent volatility in bond markets which has put pressure on equities. The Dow Jones remains ahead by 1.1%, the S&P 500 by 1.5%, while the Nasdaq has been particularly pegged back by the disruption but remains up by 2.4%.

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The FTSE 100 is seeing a relief rally following a poor end to last week. The increase in the oil price is a factor, and as an index increasingly being seen as providing value, international investors may be tempted to buy into any strength. The index remains ahead by 2% in the year to date, with the state of the nation likely to be revealed later in the week when the terms of the Budget are revealed.

The Chancellor is likely to recognise that although there is increasing potential for an economic rebound, the UK will remain in turmoil until some of the animal spirits can be released. It is therefore expected that there may be further measures aimed at bolstering financial support in particularly affected sectors, while the saviour and indeed creation of new jobs will be vital to the recovery.

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While widespread tax rises are not expected, corporation tax could be an early casualty. In any event, the scene will be set for strict tightening measures to come in order to begin to plug the huge fiscal gap, which could lead to a sobering medium-term outlook on the taxation front, although not necessarily the economy itself.