Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
China’s factory prices jump by greatest degree in nearly three years
The Chinese producer price index (PPI) – a gauge of inflation experienced by factories – rose by 4.4% year-on-year in March, compared to a rise of 1.7% in February and expectations of an increase of 3.6%. Underlying the increase, the price of oil, copper and agricultural prices were cited as the defining factors.
The news adds to speculation that economies are likely to experience a significant pick-up in consumer price inflation (CPI) this year as higher costs for producers in China – the world’s largest exporter – could feasibly be passed on to consumers around the world. Economists have found in the past that there is a high positive correlation between high PPI in China and high CPI in the US.
In response to this and growing concerns that ample liquidity is increasing the risk of asset price bubbles in China, the People’s Bank of China told commercial banks to rein in additional lending.
US trade deficit rises to record $71.1bn in February
Trade data shows that the US imported $71.1bn more than it exported in February, the highest dollar amount on record. An escalating trade deficit has traditionally been seen as a symptom of economic overheating, usually responded to by contractionary monetary or fiscal policy measures. Although the former seems probable, the latter has very little chance of materialising.
Minutes from the Federal Reserve Monetary Policy Committee (FOMC) seemingly reaffirmed its commitment to let conditions ‘run hot’, highlighting that the economy is “far” from the goal of full employment.
For the time being at least, markets seem to show both belief and approval of the dovish stance in policy, with US 10-year yields falling over the week, while equity markets extended gains.
US equity markets went from strength to strength last week, with the S&P 500 finishing the Friday trading session on a new record high for the second week in a row. Driven by the strong macroeconomic data and steadfastly dovish rhetoric from the Federal Reserve, this leaves US markets up nearly 10% in the year to date. European equity markets (measured by the Eurostoxx 50 index) also made fresh post 2008 highs in the week, regaining pre-pandemic levels for the first time. The UK equity market is roughly 10% below pre-pandemic levels although has gained momentum recently and was the best performing developed equity market last week.
Look out for next week’s update, where we’ll be focusing on US inflation, Italian stimulus decisions and Chinese Q1 GDP.
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