Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US inflation and retail sales both rise faster than expected
US inflation, as measured by the consumer price index (CPI), rose by 2.6% year-on-year in March. That’s up from 1.7% in February and ahead of the 2.5% expected by economists. The core inflation index – which strips out the effects of food and energy prices – rose by 1.6%.
While higher inflation is to be expected given the base effects of extremely low oil prices this time last year, there are other factors driving prices higher. The US consumer market remains healthy, retail sales were 9.8% higher in March than February and 5.8% higher than expectations. Import prices have risen by 6.9% over the last year – an increase not seen since 2011 - thanks to a combination of supply chain difficulties and rebounding consumer demand.
Although the Federal Reserve focuses its 2.0% inflation target on a different inflation measure (the personal consumption expenditures (PCE) rather than CPI), the two indices tend to track closely. This latest print will put further pressure on the Federal Reserve to maintain their dovish stance and commitment to hold interest rates where they are until the average inflation target and ‘maximum employment’ goals are achieved.
UK trade with EU rebounds but growth remains sluggish
Data for February shows that UK exports to the EU rebounded sharply, rising by 46.6% over the month, versus January’s 42.0% drop. And while this increase still doesn’t match pre-Brexit levels, it indicates that the initial Brexit teething problems have largely been overcome. Notably, UK imports of EU goods did not recover to the same extent.
The recovery in trade was a feature in the UK GDP figures, which showed that the UK economy grew by 0.4% in February leaving the economy 7.8% smaller than a year earlier.
Markets were generally optimistic in the face of positive economic data. European equities (measured by the broad market Eurostoxx 600) extended their streak of weekly gains to 7 weeks, the longest series of gains since 2018. Perhaps surprisingly, given the inflation data, fixed income also shared in the gains over the week, as the US 10-year yield fell to below 1.6% for the first time since mid-March.
The major market news in the week however, was centred on the IPO of the cryptocurrency exchange Coinbase. With an initial valuation of $76.9bn on its debut, that’s higher than the market capitalisation of ICE, the New York Stock Exchange’s parent company.
Look out for next week’s update, where we’ll be focusing on PMI’s results, the ECB meeting and UK inflation.
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