Investor Anxiety on Multiple Fronts

June 3, 2021

Investor concern about runaway inflation keeps getting fed by fresh data.

  • Today’s menu of May purchasing manager survey reports revealed record input inflation in many cases, intensifying capacity constraints, and input price inflation bleeding into output charges.
  • A further 4-percentage point acceleration of Turkish producer price inflation to a 30-month high of 38.2% in May overshadowed an unexpected decline in CPI inflation from 17.14% in April to 16.59% last month.
  • CPI inflation in Cyprus jumped to a 30-month high of 2.4% in May from 1.6% in April, -0.7% in March and negative 1.9% in February.

Financial market participants are also watching global geopolitical tensions with mounting trepidation. Apparently you can take Trump out of the White House, but you can’t remove Trumpism from the world’s current image of America. Plans are underway in Russia to diversify its wealth away from dollar-denominated assets. Cyber crimes are becoming bolder and more threatening. Israel’s byzantine politics are complicating uncertainty in the Middle East, including the likelihood of restoring an Iranian nuclear deal. China poses the biggest competitive challenge that the United States has faced in over a century.

A third broad source of investor anxiety is the culture wars in America that continued to undermine the functionality of the Federal Government. Biden’s policy agenda enjoys considerable voter support but is being stymied by his political opponents. And fourth, markets remain unsure that post-pandemic life is really at hand. New variants are being discovered. Vaccine administration continues to lag badly in several countries, and anti-vaccine sentiments pose another hurdle to achieving herd immunity.

Share prices in Europe have fallen so far today by 0.7% in Germany and Spain, 0.6% in France, 0.5% in Italy, and 1.1% in Great Britain. U.S. equities are also poised to open lower. In Asia, by comparison, stock markets rose 0.7% in South Korea and India, 0.4% in Japan, and 0.5% in Taiwan but fell 1.1% in Hong Kong and 0.4% in China.

The price of West Texas Intermediate oil slipped 0.3% but remains near its highest levels since late 2018. Gold touched a 5-month high yesterday but has fallen back 0.6% and to below the $1900 per ounce threshold.

The dollar is 0.1% higher against its weighted DXY index and has strengthened more sharply versus the Turkish lira (1%), Australian dollar (0.5%), New Zealand dollar (0.4%), Canadian dollar (0.3%), and euro, Swissie and Japanese yen (each by 0.2%).

Ten-year sovereign debt yields are up two basis points in the U.K. and one basis point each in Germany and the United States.

U.S. labor market news out today are encouraging. ADP estimates that private-sector employment soared by 978k last month. That jump is roughly 50% greater than what analysts were anticipating.

Meanwhile, new U.S. jobless insurance claims reported by the Labor Dept fell by a further 20k last week to 385k. Their four-week average of 428k is down from 562.5k in the prior four-week period and 723.5k in the four week before that and ending April 3. However, continuing jobless claims in the latest reported week of May 22 of 3.771 million exceeded its prior weekly total.

Many purchasing manager surveys have been published today.

  • Euroland’s composite and service sector PMI readings for May were each revised marginally higher to respective 39- and 35-month highs of 57.1 and 55.2. Individual composite scores ranged from 39-month high of 55.7 in Italy to a record high of 63.5 in Ireland. Spain had its best score in 174 months, and the French and German composite and service sector readings constituted 10-month highs.
  • The British composite and service sector PMIs for May both printed at 62.9, which as in the case of Euroland were upward revisions from preliminary indicators. The composite reading was the best since the start of 1998, and service sector growth was the fastest since May 1997.
  • Japan‘s revised composite PMI exceeded the preliminary estimate as well but, at 48.8, signified a swing back into contraction and the fastest rate of decline since January. Japan’s service sector PMI of 46.5 was at a 3-month low.
  • Sweden posted record high composite and service sector PMI readings of 70.2 and 71.7.
  • The Australian composite and services PMI scores were at 2-month lows after reaching historical highs in April.
  • In India, where Covid is running rampant, the composite and service-sector PMIs fell to 9-month lows of 48.1 and 46.4.
  • China‘s composite and service sector PMIs of 53.8 and 55.1 were below April’s four-month highs but signified faster growth than seen in March.
  • Russia‘s composite and service sector PMIs climbed to 9-month highs of 56.2 and 57.5, showing no ill-effects from geopolitical tensions and America’s threat of bigger sanctions.
  • Singapore’s manufacturing PMI of 50.7 was 0.2 points below April’s 28-month high.
  • Hong Kong‘s private-sector purchasing managers index improved 2.2 points to a 111-month high of 52.5 and represents the fourth straight month of improvement, as attested by scores above 50.0.
  • South Africa‘s private PMI fell half an index point below April’s record high of 53.7.
  • Lebanon’s private sector PMI rose 0.8 points to a 19-month high but, at 47.9, remained below the breakeven threshold of 50.
  • The non-oil purchasing managers indices of 56.4 in Saudi Arabia and 48.6 in Egypt represent four-month highs, while the 52.3 reading in the U.A.E. index constitutes a 3-month low in May.

Consumer confidence in Mexico rose 0.3 points in May to a 15-month high but remained mired well below 50 with a reading of 42.7.

Australia’s construction purchasing managers index slipped to a 3-month low but, at 58.3, spotlighted a continuing hot property market. Revised retail sales figures were also announced in Australia. Sales increased 1.1% in April following a 1.3% increase in the prior month.

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

Tags: ,


Comments are closed.