Markets Concerned with Inflation, Dollar Steadying

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Markets Concerned with Inflation, Dollar Steadying

MAY 12, 2021

The U.S. Dollar has improved as markets are now questioning if the age of loose money in markets will come to an end sooner than later with the threat of major inflationary growth being dealt with at the moment.

Overview

The reopening of the global economy is bringing along the headache of increased prices, which makes economists wonder if consumers will be able and willing to spend as much as central banks as well as businesses are hoping. Consumer Price Index figures came out better than expected for April with a pace of 0.8% over the 0.2% forecast. Fear seems to be gripping markets as this feels like the last month of hesitation before people start going out heavily during the Summer. Volatility is high.

Equity markets are most definitely concerned about the rally dying and perhaps regressing. COVID-19 is not gone, supply chains have been compromised, and there is doubt about the ability for economies to get on a path towards full employmentWe think that inflationary growth will be part of the next few months but could be fleeting. Central banks, particularly the Fed, are not concerned with aiding suppliers, they will let them figure out pricing and output on their own but are seeking more in terms of getting people back to work and the environment is still brewing for that. The commodity boom is still ongoing so expect the buck to move.


What to Watch Today…

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EUR  

The Euro fell some as data proved to be disappointing. CPI numbers came out for Germany and France below what was forecast. Additionally, Industrial Production for the whole area only expanded 0.1% when 0.8% was estimated. March at least was a sign of pick-up because February figures were revised downward to a deeper contraction. Re-opening in stages should help the Euro-zone down the line, but for now, it has dampened enthusiasm a bit.

GBP  

Sterling is not rallying but could see its strengthened status established as data pointed at a better-than-expected situation economically. While the idea of U.K. segregation is fading, the idea of doom and gloom is also being challenged by Industrial Production and Manufacturing that are indeed outdoing predictions. Gross Domestic Product for Q1 came in almost as expected, (-1.5%) instead of (-1.6%), thus showing things are not as terrible as winter and Q4 overall.

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