Springing Forward
30 March 2021
Both equity and bond markets have been tested so far in 2021.
5 min read
30 Mar 2021
Considering all the data covers the period of the latest lockdown, the UK economy remains remarkably resilient. February’s Retail Sales rose 2.1% m/m, and are now 3.7% lower than a year earlier. Lack of opportunities to do much outdoors saw clothing and footwear amongst the weaker categories. The fact that the normal mark-up after January’s sales did not happen either, also helped to contribute to a benign inflation reading. A m/m rise of just 0.1% left the headline CPI +0.4% y/y, and this will almost definitely mark the current trough as we hit very low comparatives from 2020, especially with the raised cap on energy prices. But if people aren’t spending, they are saving –or at least increasing firepower for a post-lockdown binge. Another £1.2bn of unsecured credit was paid down in February. The sense of eager anticipation for normality was reflected in the jump in the Composite PMI reading from 49.6 to 56.6, firmly in expansionary territory.
With so much focus on the threat of higher inflation, the latest reading from the Personal Consumption Expenditure data came as a relief. The Core PCE Deflator reading, which is the Fed’s favoured measure, came in a touch lower than expected at 1.4% y/y in February. The University of Michigan’s monthly survey shows that inflation is expected to be 3.1% in a year’s time and to average 2.8% on a 5-10 year view. Its sentiment readings continue to tick higher, evidence of increasing confidence in the US’s recovery.
The strength of the latest PMI readings in the EU were surprisingly strong, possibly reflecting pre-third wave/lockdown optimism. Manufacturing (62.4 vs 57.9) and Services (48.8 vs 45.7) both jumped, leaving the Composite reading back in a growth phase at 52.5. Germany’s closely-watched IFO survey provided the same message, with the Expectations component rising from 94.2 to 100.4 (f/c 95). It will be interesting to see whether or not businesses are able to “look through” the latest setbacks.
China’s industries have certainly bounced back from Covid, with YTD industrial profits up 179% from 2020. And despite efforts to curtail imports from China in certain western countries, it still racked up another current account surplus of $124bn in last quarter of 2020.
Source: FactSet
Source: FactSet