Persistent Inflation Concerns Upsetting Equity Markets and Dollar to Lesser Extent

May 11, 2021

A sampling of Asian stock markets suffered loses Tuesday of 3.8% in Taiwan, 3.1% in Japan, 2.0% in Hong Kong, and 1.2% in Singapore and South Korea. Australia’s market fell 1.1%, and in Europe, markets are down currently by between 1.4% and 2.3% in Switzerland, Spain, Italy, France, the U.K. and Germany. Technology stocks have led the decline. The Nasdaq futures shows a drop today of 1.7%, exceeding declines in the futures indices of 1.0% in the S&P 500 and of 0.5% in the DOW.

The DXY weighted dollar is trading near today’s lows but down just 0.1%. The dollar is also off 0.1% against the Australian and New Zealand dollars and the British pound. Even larger dollar declines occurred overnight of 0.4% versus the Mexican peso and 0.2% relative to the euro and Japanese yen. The price of gold is 0.2% higher.

The 10-year Treasury yield’s one-basis point rise today has been eclipsed by advances in comparable sovereign debt yields of six basis points in Italy, five bps in France and the Netherlands, four bps in Germany, the U.K., and Spain.

The price of West Texas Intermediate crude oil settled back 1.1%.

More evidence of intensifying inflation around the world has emerged, but an equal motivation behind greater investor caution has been broad central banker commitment to maintaining very accommodative monetary stances. Chicago Fed President Evans, for instance, wants to see a string of monthly job gains of close to a million workers and signs that such are feeding into higher wage awards. And a published summary of opinions from the recent Bank of Japan Policy Board meeting on April 26-27 revealed a consensus prioritizing the continuing need for massive monetary stimulus because of risks to the economic recovery.

German wholesale prices posted their fourth straight monthly increase of more than 1.0% in April. The 12-month rise of the WPI jumped from 4.4% in March to a 121-month high of 7.2% in April.

Chinese CPI inflation more than doubled last month to a 7-month high of 0.9% in April. That compares to a 12-month 0.3% decline posted in January. Meanwhile, Chinese producer price inflation of 6.8% last month was the most in 42 months and compares to a 2.1% on-year decline a half year earlier.

The expected inflation component accompanying the ZEW Institute’s May index of investor sentiment toward the euro area climbed another 2.5 index points to a elevated 77.6 reading.

Dutch CPI inflation in April matched March’s 15-month high of 1.9% in spite of a 0.2 percentage point decline in core CPI to a 5-month low of 1.6%.

Consumer price inflation in Hungary rose 1.4 percentage points to a 101-month high of 5.1% in April. Czech CPI inflation of 3.1% last month was at a 7-month high.

Other data released today attested to economic recovery from a very low base. For example, GDP in Malaysia advanced 2.7% last quarter but remained 0.5% below its year-earlier level. Likewise, Filipino GDP increased for a third straight quarter but was still 4.2% below its level in the first quarter of 2020.

On-year increases in Turkish retail sales of 19.2% and industrial production of 16.6% in March constituted the largest 12-month advances in 123 and 115 months, respectively.

A 7.2% monthly increase in Japanese real household spending during March was three times greater than forecast and resulted in an 18-month high 6.2% advance from a year earlier.

U.S. small business sentiment according to the monthly NFIB-compiled index rose 1.6 points in April to a 5-month high.

British same-store sales in April recorded their largest-ever 12-month increase, which was 39.6%.

Indonesian retail sales surged 6.1% in March, which easily reversed February’s 2.7% setback and resulted in the smallest 12-month decline (14.1%) since September 2020.

Italian industrial production unexpectedly dipped 0.1% in March but, set against a low base of comparison, was 37.7% greater than a year earlier.

The German ZEW expectations index jumped from a reading of 70.7 in April to a 255-month high of 84.4 in May. Euroland’s ZEW expectations index similarly printed at 84.0, highest since February 2000.

A 4.6% year-on-year increase in South African factory output inĀ  March had the rand trading near its best levels since January 2020.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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