Week ending 28th May 2021.

This week’s equity market action was surprisingly dull, despite the volume of US economic data announcements.

Economic data can be volatile at the best of times, but it is particularly volatile at present given data readings are being distorted by last year’s unprecedented lockdowns and containment measures (which effectively meant the global economy hit a brick wall and ground to a halt); and by the current economic reopening which is unleashing pent-up demand – and at the same time, we have supply chain disruptions and bottlenecks.

The week’s main economic announcement was today’s (Friday 28 May 2021) US core PCE reading.  PCE, or Personal Consumption Expenditure core price index, is the Fed’s preferred inflation measure – and after the recent sharp increase in US CPI inflation, a big upside surprise could have seen equity markets question why the Fed is determined to ignore the increases.

Thankfully, while the inflation reading did rise, it was in line with expectations, which suggests to us that the current uptick in inflation will not be anything more than a temporary blip – so fingers-crossed equity markets will soon stop fretting about tighter monetary conditions.

Elsewhere, US durable goods orders declined by 1.3% in April, versus economist expectations of a 0.8% rise.  While this was disappointing, when we dig down and look at the ‘ex-transportation’ subcategory (which excludes aircraft and military spending – and so is a better barometer of business equipment investment) it shows us a very different story:  not only did April’s reading rise more than expected (1.0% versus 0.7%), but March’s data reading was revised sharply higher (to 3.2% from 1.9%).

Additionally, yesterday’s (Thursday 27 May 2021) US weekly jobless data continues to drop (which is positive):  initial claims fell to 406,000 from 444,000, while continuing claims fell by nearly 100,000 to 3.642m.

Looking ahead to this coming shortened week, of main interest will be the US employment data after last month’s big miss (please see here).

Elsewhere we have US ISM; Eurozone CPI inflation; Eurozone unemployment; Eurozone and Japanese retail sales; Chinese PMI; and Japanese industrial production.

Investment Management Team

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