Marius Paun | London, UK | Senior dealer |Friday 14th May 2021
The US Inflation Sparks Concern
The US nonfarm payroll report released last Friday was dubbed an epic miss on consensus but markets reacted better than one would expect. It was interpreted as an indication that the economy is still showing signs of weakness and being quite a long way from overheating as some analysts had previously suggested. Interestingly Goldman Sachs blamed the miss on laziness explained by the ‘unusually generous unemployment benefits.
However this week, the stock markets had a bumpy ride, posting steep losses (although trying to rebound on Friday) as inflation reared its ugly head. The US April CPI numbers indicated a rise of 4.2% year on year vs 3.6% anticipated and 2.6% prior. One big driver mentioned was a surprise 10% increase month on month in used car and truck prices which were responsible for one-third of the rise!!!… the Fed vice chair Clarida dismissed concerns, saying that inflation moving above 2% was due to ‘transitory factors. He added that inflation should ‘increase further before moderating later this year’ whilst the recovery should pick up steam. Nonetheless, he acknowledged that inflation should make a comeback in 2022 and 2023.
China also posted its inflation figures for April, showing a rise of 0.9% year on year for CPI vs expected 1.0% and 6.8% advance for PPI vs 6.5% predicted. On a different note, state media in China reported a planned ban for Swedish firm Ericsson, from participating in China’s 5G infrastructure building. That comes after last year regulators in Sweden banned Huawei 5G equipment on national security concerns.
European Central Bank released the minutes from its April policy meeting pointing out that the euro exchange rate had appreciated only marginally. The central bank thinks a recovery in global trade is underway, having started in the second quarter of 2021. On top of that, the ECB reckons the risk to the euro area growth continues to be tilted to the downside but has balanced somewhat in the medium term.
In the UK, Prime Minister Boris Johnson has revealed a move to step 3 of lockdown, which means an easing of the restrictions on May 17. Among the measures: indoor hospitality to reopen; cinemas to reopen with some capacity limits; social distancing rules for public places to remain in place. Encouragingly people will now have the freedom to make their own judgement in private.
The US oil prices gained slightly to trade just above $65.00 going into the weekend after the government declared a state of emergency earlier in the week over the fuel pipeline cyber-attack. The Colonial Pipeline, which transports 2.5 million barrels per day and provides around 45% of East Coast diesel, gasoline and jet-fuel supply, was the target.
Bitcoin also suffered heavy losses as investor pessimism spilt over into the cryptocurrencies world following the surprise inflation data. Furthermore, a tweet from Elon Musk in which he said Tesla would no longer accept payment in Bitcoin, exacerbated the drop. Musk cited fossil fuel used in mining as the main reason for the U-turn and promised he would favour less energy-intensive cryptos……..like Doge?!!!