Hello. This is Jeremy Richardson from the RBC Global Equity Team here with another update. And it feels as though summer has at last arrived.

The equity markets feel a lot calmer than they did back in March when we had that violent rotation driven by the reopening trade as economic recovery drove investors away from sort of COVID-immune business models and back towards those business models more economically exposed to the pickup in aggregate demand.

But for the moment, it feels as though it’s not aggregate demand which is at the front of people’s minds, but actually more about aggregate supply.

So we’re seeing a few bottlenecks within the economy and that’s leading to elevated prices in a number of areas. We can look at commodities, both commodities and, to an extent, agricultural as well. We’ve seen the very tight supply of semiconductors, with a number of automotive factories having to cease production as they wait to get their hands on new levels of supply.

And also, anecdotal evidence that there’s tightness in the labour market since the reopening trade has meant that firms have had to go back and rehire a lot of the low-skilled or partially skilled workers that they let go when the pandemic struck 12 months ago.

These are all good things in the fact that it tells us that the economy’s adjusting and getting back to normal, but it is causing some difficulties for a number of businesses. We’re hearing companies talking about pricing pressure. And policymakers are looking at this data with some degree of concern because we had, in May, the annualized U.S. inflation figure announced at 4.2%. Now, that’s twice the level that is targeted by the U.S. Federal Reserve over the medium to longer term.

Now, the Fed has said that it’s happy to accommodate higher inflation in the short run, but it feels as though now we’re in a bit of a tension. There’s a bit of a standoff going on. Because the longer that we have more elevated levels of inflation, the greater the pressure will build on the Fed to do something. And that will probably mean cutting back in terms of the amount of QE and maybe potentially rising interest rates.

And that’s of concern to investors because when we’ve had previous episodes—think back to 2013, maybe 2018—this has been a cause of potential volatility.

For the moment, it feels as though investors are buying the Fed’s line that this is likely to be temporary. And just the most recent price data from the world of commodities is showing some relief in terms of prices. We’ve seen agricultural commodities, price of lumber, down now from their recent highs.

And so the policymakers will be hoping that that trend continues, relieving pressure on the supply side and meaning that, actually, monetary policy could only lead the slowest and most cautious of adjustments. And I think most investors will be welcoming that.

As investors ourselves, in terms of how we’re thinking about the environment at the moment, we have seen that the excitement driven by the reopening trade in March and also this sort of frisson of excitement caused by the publication of the U.S. inflation data seems to have largely passed out of the system, and actually, for the moment at least, it looks like a much calmer environment.

But we do have to keep sort of one eye on the future at least, in terms of what the overall policy agenda means, because this environment has the potential to change quite quickly if the data does. So, to sort of use the expression that we’re hearing at the moment, as we exit the pandemic, it’s data, not dates, and so we’ll continue to pay close attention to that and monitoring the risk environment to make sure that the portfolio remains well balanced with a heavy focus on stock-specific risk sources.

I hope that’s been of interest and I look forward to catching up with you again soon.