With the start of the week ushering in new government advice allowing close physical contact with people from other households for the first time in months, all was not as rosy for financial markets as it was rising inflation that did not receive a warm embrace from investors.
The week had actually got off to a strong start, with markets rising as data from the previous Friday had shown jobs growth unexpectedly slowing in the US for the month of April, giving equities a lift but putting downward pressure on US Treasury yields. With the spectre of inflation temporarily thwarted, the heavily mining exposed Australian exchange hit a yearly high, whilst Japanese shares gained nearly 1%. Also propping up markets was the oil sector, after a cyber-attack caused a shut down to a US pipeline operator which provides nearly half of the country’s east coast fuel supply.
With a potential spike in inflation still clinging on in the back of investors’ minds despite softer data, the middle of the week provided little respite. US data showed that consumer prices, which had firmly ensconced itself, jumping 4.2% in the 12 months through to April, up from 2.6% in March and marking the biggest increase in prices since September 2008. Breaching the Federal Reserve's target of 2%, the data raised fears that the central bank might need to raise interest rates earlier than anticipated and at a sharper rate.
Unsurprisingly, it was the technology heavy NASDAQ which bore the brunt of investor selling, falling 2.5% and finishing the day at its session low as Amazon and Facebook losing more than 3% each, with Tesla shedding more than 6%. The fear spread to other major indices, with the FTSE 100 enduring a poor week as commodity prices plummeted.
Investor panic was also compounded by cases of a new Indian variant of the Coronavirus being diagnosed in Bolton and Nuneaton, sending domestically orientated stocks lower as doubts over whether the government would or could fully open up the economy by the summer started to manifest. It was those stocks which had most to lose from a delayed easing in lockdown measure that were affected as retailers, cinemas and pub chains all endured heavy selling.
The coming week not only sees restaurants and pubs opening their doors to indoor diners but also a wealth of domestic economic data for economists’ to also feast on.
With this year’s underwhelming spring weather set to continue, it will not just be those dining who will be glad to have a roof over their head as Monday brings Rightmove’s House Price Index data. The numbers represent the UK’s earliest report on housing inflation but usually produce only a mild reaction as buying and selling prices are not always correlated. However, their data still acts as a leading indicator as to the state of the UK’s housing market as rising house prices attract investors and often spurs industry activity.
We should get an even better gauge of how the domestic economy is recovering by the following day as a myriad of employment data is released from the Office for National Statistics. Covering the nation’s unemployment rate, average hourly earning’s index and benefits claimant count, Tuesday should prove invaluable to those measuring just how quickly the UK is bouncing back from last year’s COVID induced economic slump.
With a higher than expected inflation reading having left its mark in the US the previous week, Wednesday sees the UK release its equivalent, measuring the change in the price of goods and services purchased by consumers. The data will also strip out more volatile areas such as food and fuel prices as they tend to skew readings with potential heightened price movements.
The week will be rounded off on the continent as the bloc’s largest economy, Germany, releases its PMI numbers. PMI numbers are a useful part of the economist’s toolkit as they act as a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers perhaps hold the most current and relevant insight into the company's view of the economy.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in May 2021.