Market Commentary May 10th to 14th
What to look forward to this week in the financial markets.
We can’t look forward to this weeks market events, without casting an eye on what happened with Friday’s NFP. This was the mother of all economic misses, as the market was expecting a 1 million-plus number of jobs created. Many commentators are saying it’s going to be the death of the USD.
Well, that may be the case in the short term, however, the real driver of the USD is the monetary policy of the Federal Reserve. They are no longer a Central Bank that acts on forecasts and predictions, they will only act on results.
So, are they right about not talking tapering? On the jobs data, yes it is true, they were right.
However, this week we get a look at US inflation. This may put the Fed under some pressure on its sanguine attitude to their 2% inflation target.
The US CPI is undoubtedly the highlight of the week, released on Wednesday US Inflation is expected to jump to 3.6% YoY in April up from 2.6%. While Core Inflation Ex Food and Energy is expected o be 2.3%, up from 1.6% the previous month.
In my mind with demand outstripping supply, as we have seen from last weeks US data, commodity prices at record highs, and a weak Dollar, it is going to get uncomfortable to ignore inflation in the coming months.
Tapering talk may be back again sooner than you think. The US Bond market could be about to put a base under the beleaguered USD.
US PPI will follow on Thursday showing a jump in April from 3.1% to 3.6%.
With post lockdown demand so strong, those price rises will be passed onto consumers for sure.
The third piece of interesting US data will be Fridays retail sales, a jump well over 10% in April would seem likely.
The UK seems to have shrugged off its political worries this morning about Scottish independence, but that story could well be something that flares up again in the future.
The release of Q1 GDP on Wednesday will show the effects of lockdown on the UK economy, however, we are trading on Q2/3 recovery. The Bank of England just upgraded its economic forecast to 7.25% for 2021. So a poor number is unlikely to dent the GBP, but a slightly better than expected could lift it.
China will also release its inflation numbers on Tuesday which is expected to jump to 1% from March’s 0.4%
There is not a lot more on the calendar this week other than the data we have highlighted. However, on Tuesday and Thursday, there will be several Federal Reserve speakers giving their opinions. The Governor of the Bank of England Bailey will be talking on the same days.
Good Luck this week.