Today’s more resilient tone has been largely driven by a rebound in basic resources and industrials, and has come in spite of a disappointing UK GDP number for July, which showed that economic activity almost stalled, due to a number of different issues, including the “pingdemic” and shortages of materials.
Despite today’s attempts to recover this week’s losses, the price action would suggest that there is increasing anxiety amongst investors over the growth outlook, as well as the effect that continued increases in prices, and supply chain disruption, could well have on spending patterns, as well as wages. Surging energy prices are also acting as a cause for concern.
There was little in the way of corporate news to digest though it was notable that the travel and leisure sector has remained under pressure, with British Airways owner IAG sliding to a 7-month low, TUI hitting its lowest level this year, while easyJet and Ryanair are lower as well. Yesterday’s fund-raising announcement by easyJet appears to have raised concerns that other airlines might well have to look at following suit, unless there is a pickup in passenger demand in the near future.
After three days of declines US markets initially looked as if they were going to enjoy a bit of an end of week rebound after the latest August PPI numbers made a new record high of 8.3%, while core prices jumped to 6.7%, also a record.
The first telephone conversation between President Biden and China’s President Xi was also positively received, with the hope that the two could dial down some of the tension between the US and China, however as the session has progressed the early gains have started to evaporate, as concerns over rising prices outweigh optimism over a delayed taper.
With US CPI numbers due out in the next few days it would be rather odd if some of these price rises didn’t start to trickle down into the headline CPI rate in next week’s numbers. These big increases in prices may also help explain why consumer confidence has started to slide back, with next week's August retail sales another test for investor sentiment in the coming days.
Concern over the delta variant is also weighing on sentiment with a number of big US companies pushing back their return-to-work strategies with Microsoft being the latest to push back normalisation date, while President Biden appears to be going down the mandatory vaccine route, in a move that rather jars when you consider that the US is known as the “Land of the Free”
In earnings news US food retailer Kroger reported Q2 results that beat estimates, helped by digital sales growth of 114% over two years, and operating profit of $839m. The company also upgraded its full year guidance to between $3.25c and $3.35c a share. Despite this the shares slipped back, probably as a result of some profit taking, having hit record highs a week ago.
The US dollar has had a positive week, after sinking to a four-week low last Friday. This week’s ECB and Bank of Canada rate meetings both turned out to be relative non-events, while the rebound in the US dollar was most pronounced against the commodity currencies of the Australian and Canadian dollar.
The pound has also had a fairly decent week, holding its own against the US dollar, and rising against the euro, after comments yesterday from Bank of England governor Andrew Bailey who said that at least 4 MPC members felt that the recent improvement in basic economic conditions could well be used as justification for a rate rise, although one wasn’t imminent yet. This was quite an unexpected moment of candour, as well as insight into the deliberations on the Monetary Policy Committee at the last meeting, and while it doesn’t suggest that policymakers are itching to pull the trigger on a rate move it can’t be too long before the central bank reins in its bond buying program.
Crude oil prices appear to have received a boost from this morning’s reports of the phone call between President Xi of China and President Biden, with the hope that we might see a dialling back of some of the tension between the two countries. Despite today’s gains we haven’t, as yet, moved above the highs of this week, with prices looking to finish the week more or less where they finished last week, ahead of next week’s revisions to the oil outlook from the IEA and OPEC+.
Copper prices have seen a decent rebound this week, with a big rally today, while nickel prices hit a 7-year peak on the back of shortages, caused by a big increase in demand from electric vehicle makers and falling stockpiles.
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