Week ending 9th April 2021.

The markets’ obsession with inflationary pressures continued this week after US PPI data climbed 1% in March, taking its annual advance to 4.2%.

PPI, is the producer price index, which measures wholesale price changes – and as such, is a good gauge of inflation trends.

Although this PPI reading gave us a taste of what to expect next week when the US announces its CPI inflation rate, as we have been repeatedly saying in these Market Summaries, a sharp rise in inflation in the coming months is a foregone conclusion.

Inflation is always calculated and expressed as a percentage change compared to prices 12 months before – and thanks to a mixture of OPEC supply cuts and a more optimistic economic outlook, the oil price has risen very strongly following its dramatic collapse last April.  Consequently, as the 2020 oil price decline is replaced by the higher 2021 oil price, year-on-year inflation readings in the coming months will quickly accelerate, in what is known as the ‘base effect’.

However, as we have previously stated (which admittedly is contrary to the views of the majority of major economists), this coming rise in inflation will simply be transitory.  In fact, we believe inflation will quickly fall back next year – and as a consequence, we are expecting central banks (such as the US Fed, BoE, ECB and BoJ) will ignore these inflation readings and leave monetary policy loose.

Thankfully, our view was backed up this week by dovish comments from a number of policymakers at the US central bank, including the Fed chair, Jay Powell, who warned that the disparate distribution of coronavirus vaccines would mean that the global economic recovery would be “uneven”.  This doesn’t sound to us like a Fed that is thinking about increasing interest rates anytime soon – and we have been around and managing client investments long enough to fully understand the adage, “don’t fight the Fed”!  And of course, accommodative monetary policies are very positive for equity markets.

Looking ahead to this week coming, our eyes will be focused on the markets’ reaction to the US CPI inflation on Tuesday (13 April 2021).  Other important US data releases include retail sales and the Empire State manufacturing index on Thursday (15 April 2021); along with housing data and the University of Michigan consumer sentiment reading on Friday (16 April 2021).

Elsewhere, we have UK industrial and manufacturing production; Eurozone CPI; Chinese Q1 GDP; Chinese retail sales; and Japanese PPI.

Investment Management Team

The latest market updates are brought to you by Investment Managers & Analysts at Wealth at Work Limited which is a member of the Wealth at Work group of companies.

Links to websites external to those of Wealth at Work Limited (also referred to here as 'we', 'us', 'our' 'ours') will usually contain some content that is not written by us and over which we have no authority and which we do not endorse. Any hyperlinks or references to third party websites are provided for your convenience only. Therefore please be aware that we do not accept responsibility for the content of any third party site(s) except content that is specifically attributed to us or our employees and where we are the authors of such content. Further, we accept no responsibility for any malicious codes (or their consequences) of external sites. Nor do we endorse any organisation or publication to which we link and make no representations about them.