Beginning with a typical British bank holiday weekend of strong gales and heavy rain across much of the country, it was up to the Bank of England to provide a few rays of sunshine on a domestic economy slowly drying out from the COVID-19 outbreak.
Thursday saw Andrew Bailey, the Governor of the Bank of England, stating that the economy is expected to expand by 7.25% this year, its fastest in more than 70 years. Of course, whilst the news is much welcomed, it seems very much like the sunshine after the shower, as the economy shrank almost 10% last year in its sharpest drop in 300 years during its COVID nadir. While Mr Bailey cautioned that the surge in output would only return the UK economy back to the size it was in 2019, he added: "Given what the economy has been through, it is good news."
Although the government’s furlough scheme has helped limit the rise of unemployment, and inflation looks set to manifest as the economy reopens, the central bank seemed to prefer to wait and see rather than act now, keeping base rates at 0.1%, voting 8-1 to maintain the status quo.
The second half of the week also saw the employment picture brighten up a little in the US, as data showed that weekly jobless claims had hit a 13-month low. Also fueled by an efficient vaccine rollout, American employers announced the fewest job cuts in nearly 21 years for April. Initial claims for state unemployment benefits tumbled 92,000 to a seasonally adjusted 498,000 against economists’ predictions of 540,000.
However, it was much sunshine and showers for US bourses this week as the tech-heavy NASDAQ sold off by more than 2% on Tuesday as investors extended this year’s theme of rotation out of technology stocks, favouring more cyclical sectors. Last year’s winners such as Alphabet, Facebook and Amazon all fell around 4% as all 11 sectors of the S&P 500 ended in the red.
Basking in the warmth of stronger than expected earnings from its banking sector, it was Europe that enjoyed a strong finish as the sun set on the week. The pan-European index more than wiped out any losses experienced on Tuesday as mining shares jumped more than 5% to a 10-year peak, with the heavily exposed FTSE 100 leading the way as copper prices hit decade highs on optimism about a speedy recovery in the global economy.
As the world continues to recover from the worst of the COVID-19 outbreak, the spectre of inflation is fast becoming a key topic for those watching markets. With saving rates and pent up demand hitting record levels, it seems that it may only be a matter of time before the consumer has the ability and means to get spending.
Monday should provide a decent gauge for how this spending may look as China, one of the first nations to emerge out of its pandemic slump, releases its Consumer Price Index figures. Measuring the change in the price of goods and services purchased by consumers on a year-on-year basis, the data acts as a leading economic indicator and should have a profound effect not only on the Chinese Yuan but also on those neighbouring counties that rely on China for trade.
Tuesday sees US Mortgage Delinquency rate numbers released, a piece of data with a certain gravitas due to its role in triggering the Global Financial Crisis back in 2008. Representing US mortgages which were at least one payment late during the previous quarter, the data is generally viewed as a lagging indicator, but nonetheless important as it shows the strength of the housing market, a sector that permeates several others in the broader economy.
From US addresses to a very important one from Threadneedle Street, Tuesday also sees Bank of England Governor, Andrew Bailey, participate in a panel discussion about the new Secured Overnight Financing Rate, term rates and loan market developments at a webinar hosted by the Alternative Reference Rates Committee. Although focussing more on financing rates, the talk could still cause heightened volatility in domestic stock and currency markets due to an unscripted Q&A session at the end.
The week goes full circle by Friday, as once again inflation will be firmly in focus. Friday sees US Core Retail Sales data released, detailing the change in the total value of sales at the retail level, with volatile automobile sales striped out. This ‘core’ data should provide a better illustration of consumer spending habits and should also allow us to predict future inflation rates more accurately.