Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.
European inflation data beats consensus estimates
European inflation data surprised to the upside, climbing to its highest rate on record with a 7.5% year-on-year increase. This was largely driven by energy prices, which rose by c.45% over the year, as the effects of the war in Ukraine start to feed through to official statistics. German CPI data was particularly strong, hitting the highest level since 1981, at 7.6% year-on-year. However, the inflationary surge was seen across the board.
Core inflation, which strips out the impact of food and energy prices, rose by 3.0%, sparking hopes that the inflationary pressure may not be as persistent as initially feared. However, one worrying development is that higher prices are feeding through to consumer sentiment, which has dropped to the same low levels seen at the start of the pandemic in March 2020.
The European Central Bank is increasingly keen to ease inflationary pressures and has signalled that it may speed up the tapering of its asset purchasing programme, which is now likely to end in Q3 this year. At the same time, is likely that European governments will act to help households mitigate the worst effects of energy price rises.
US jobless rate continues to fall, keeping the pressure on the Federal Reserve to raise rates
The US economy added 431k new jobs in March, bringing the employment rate to just 1% below its pre-pandemic level. Whilst jobs growth was lower than expected the consistently positive trend in Q1 as coronavirus restrictions were eased indicates a tight labour market and lends support to the Federal Reserve’s (Fed’s) decision to raise interest rates to tame inflation.
If the current pace of jobs growth is maintained, a full recovery of the labour market to pre-pandemic levels could happen in the next few months. The strength of the labour market combined with inflation that is well above target may prompt the Fed to act faster than expected to control rising prices. In recent weeks, markets have priced in a higher likelihood of a 0.5% rate hike being announced at the Fed’s May meeting.
Global equities were down 0.5% last week (as measured by the MSCI ACWI), led by US and European equities. Emerging markets had a better week as equity markets in China, Brazil and India finished the week in positive territory.
Chinese equities were buoyed by the news that Chinese regulators lifted a requirement for offshore-listed Chinese companies to be audited by Chinese government agencies. This goes some way to appeasing US regulators who had threatened to delist Chinese companies listed in the US (ADRs) if they failed to disclose their accounts.
The price of crude oil, which has been particularly volatile in the past few months, fell last week in response to the news that the US will release 1mn barrels a day from their strategic oil reserves.
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