With pubs, gyms and retailers reopening their doors for the first time this year, there was much to rejoice about this week, with the buoyant mood also stretching to global markets, which by Thursday had maintained a five-day winning streak, hitting record highs in an almost regular fashion.
However, it wasn’t good news for all sectors, as airlines, like many of the revelers who had turned up to a pub garden on Monday evening, were left out in the cold. Both EasyJet and Ryanair fell close to 3% on Monday after HSBC downgraded their stocks from “buy” to “hold”, citing worries that many holiday destinations could be inaccessible for a while to come due to prolonged lockdowns, particularly in Europe.
The following day saw a poorer than expected UK GDP reading, outweighed by strong US inflation data as once again, investors chose to see events from a glass half full perspective. American consumer price data for March showed the pace of inflation was rising steadily at 0.6%, its biggest increase since August 2012, as further vaccinations and fiscal stimulus unleashed pent-up demand. The data, however, is unlikely to change Federal Reserve Chair Jerome Powell’s view that any rise in prices during the coming months will be transitory as any structural inflation may still be hard to come by.
Whilst the week proved to be a sparkling one for developed markets, it was a double shot for those following emerging markets, as both Russia and Turkey were the subject of increased investor scrutiny on Thursday. First, Turkey held its inaugural central bank meeting under its new governor after the last one was sacked by the President for hiking interest rates last month, causing the Turkish Lira to collapse by 10% in response.
Then it was Russia’s turn as the rouble fell heavily throughout the second half of the week, a result of the United States announcement of further sanctions for alleged interference in presidential elections and malicious cyber activity. Moscow reiterated that it would also introduce its own retaliatory set of sanctions, sparking fears of the start of an escalating war of words with no end in sight.
Calling time on the week was a flurry of upbeat retail sales emanating from the US, showing that the pent up demand seen in the world’s largest economy was potentially starting to feed through as sales rose a staggering 9.8% month on month, far exceeding economists’ expectations of 5.8% growth.
With the retail and leisure industry now welcoming consumers back after a long winter of lockdown, it will be interesting to see how an easing of COVID-19 restrictions has had an effect on the overall labour market as workers return to their previous posts.
Although not quite covering last week’s return to work, this coming Tuesday’s claimant count data, coupled with the UK’s official unemployment rate, should offer us an invaluable insight towards the state of the domestic economy and the direction it is moving in. The unemployment rate, measuring the percentage of the total work force that is unemployed and actively seeking employment during the past three months, has remained static at around 5% during the past year or so, largely due to the government’s furlough scheme skewing the figures as those on furlough do not appear on official unemployment data. However, with the government hoping that as the economy slowly reopens, they will be able to withdraw the scheme, it will be interesting to see how the labour market evolves over the next few months.
With numbers heading back to full employment increasing and savings rates at all-time highs, the following day’s inflation data should also make for fascinating reading as the pent-up demand amongst consumers should finally start to filter through into the wider economy. Considered one of the UK's most important pieces of data because of its use in the Bank of England’s thinking when deliberating base rate moves, the release could have a heightened impact on the bond market, especially as global yields start to creep up.
The week will be rounded off on the continent, where a slew of European PMI data is released, detailing both the services and manufacturing sectors. The data will also be released for the majority of Europe’s major economies, including Germany and France, giving us a more comprehensive view of just how much of an effect the latest round of COVID-19 restrictions have had on Europe’s broader 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 April 2021.