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Weekly commentary 19 May 2021

Weekly Market Commentary

 

A big week for the US inflation debate sees the Consumer Price Index (CPI) beat expectations

Inflation was the main topic in markets last week but a strong Thursday and Friday for equities meant that indices were less aggressively down for the week in aggregate. Meanwhile, bond markets remain largely calm, even if the transitory versus sustained inflation debate feels more urgent than a few weeks ago.

 

 

All eyes remain on US economic data in the week ahead, as investors search for signs of sustained inflationary pressures

Following on from the inflation print earlier in the week, it was US economic data that remained the focus on Friday. US retail sales surprised to the downside, with no change in April versus expectations for a 1% increase [1]. It is important to note that this comes after a very strong reading for March. Industrial production also surprised negatively, albeit only by 0.2% [2]. Meanwhile, the University of Michigan survey of economic expectations saw year ahead inflation expectations surge, including predictions of a prolonged inflationary impact post the pandemic. Any data point which may signal either supply chain disruption or increased consumer demand will be closely watched by markets over the coming months. With the US expected to surpass its 2019 level of GDP relatively shortly, supercharged by fiscal stimulus, all eyes will be on the region for signs of inflationary pressure as the reopening continues.  

COVID-19 cases fall globally but remain elevated in Asia 

While inflation has almost exclusively dominated the conversation over the last week, COVID-19 cases in Asia remain a concern, despite the week-on-week global picture improving. Taipei has imposed additional restrictions, with schools closing until at least 28 May. Singapore has enacted similar measures as Asia tilts towards defensive measures. There was also significant news flow surrounding the global spread of a COVID-19 variant first detected in India. Positively, initial studies suggest that while the variant may be more easily transmitted, vaccines remain effective.  

After April’s weaker than expected US jobs report, it was a rather bruised market that awaited the US inflation number last week. US CPI inflation came in well above expectations, driven higher by a surge in sub-indices such as used cars and trucks. By the end of the week, the US market had risen to levels seen prior to the CPI release and US yields remained under control. Of course, none of this tells investors whether this is set to be temporary or transitory, which remains the big topic for investors. 

1 Bloomberg, 14 May 2021 (https://www.bloomberg.com/news/articles/2021-05-14/u-s-retail-sales-stalled-in-april-after-stimulus-.....)
2 Bloomberg, 14 May 2021 (https://www.bloomberg.com/news/articles/2021-05-14/u-s-manufacturing-output-increased-0-4-in-april-f.....)

 

SOURCE OF CONTENT:  Brooks MacDonald

 

The Week In Numbers

 

 



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