Pre-market actions: has inflation peaked? The jury is still out
What’s happening: Lumber prices, fueled by a construction boom, fell 40% from their all-time high in early May, while copper prices fell 11% . Corn prices are 14% lower.
Long-term bets on commodities have just overtaken bullish bets on bitcoin as the most crowded trade in the markets, according to Bank of America’s latest survey of global fund managers. This could be a sign that the surge in commodities, which is pushing up prices, may have run its course.
Wider economic data closely watched by policymakers, however, tells a different story.
The jump above the Bank of England’s 2% inflation target was not expected until the end of the year, according to its May monetary policy report.
“While [consumer price] inflation remains well below the 5% rate recorded in the US, so far there has been more ‘reopening inflation’ in the UK than we expected, “said Paul Dales , UK chief economist at Capital Economics, in a research note.
This puts central banks in a difficult position. Price pressures may be transient, but there are still fears that inflation may make a more permanent comeback after remaining subdued for decades. The Bloomberg Commodity Index is only 1.9% below its recent peak.
Against this backdrop, the Federal Reserve – which makes its latest policy announcement on Wednesday – is expected to indicate that it is at least considering how to move away from the super-support policies it put in place during the pandemic, which have flooded the United States economy with cash.
“Partly because of the recent surprisingly high inflation, the Fed is likely to start discussing an exit from its ultra-expansive monetary policy,” Commerzbank chief economist Jörg Krämer recently told clients.
On the radar: Investors want to know when the Fed will ease its massive asset purchase program, which should be the first major step it will take towards policy normalization. The Fed still buys $ 120 billion in securities per month.
“A change of course by the Fed, which is therefore probably approaching, is still a critical issue for the markets,” Krämer said.
Krämer believes it’s too early for Fed Chairman Jerome Powell to officially signal a new course, although he will likely have to answer tough questions at his press conference. Instead, a real shift could come next quarter – well before any real move, so the markets have time to digest them.
Corporate America is ready to embark on a hiring frenzy
The Business Roundtable, an influential lobbying group of top U.S. executives, said on Wednesday that its CEO’s economic outlook index reached the second-highest level on record, behind only in early 2018, when Trump tax cuts have been promulgated.
And companies are even more eager to increase their workforce today than they were after the fiscal windfall. A sub-index measuring CEO hiring plans hit an all-time high in the second quarter.
“CEO optimism near historic highs, especially with record hiring plans, is a strong sign that we are emerging from this unprecedented crisis,” said Walmart CEO Doug McMillon, who chairs the Business Roundtable , in a press release.
Some companies, including manufacturers and restaurants, have complained of a labor shortage. The United States has a record number of job vacancies, which stood at 9.3 million in April.
To address this problem, the Business Roundtable urged the White House and Congress to allow the expiration of enhanced unemployment benefits in September.
Business Roundtable CEO Josh Bolten said at a press briefing that the $ 300 increase in unemployment benefits “kind of kept a damper on the overall labor supply”, in especially for lower paying positions – while recognizing that health and child care issues caused by the closure of schools and daycares also remains a problem.
Earlier this month, President Joe Biden stressed that the enhanced benefits will not be prolonged. Many Republican-led states have already ended it.
But there has been a setback from economists like Heidi Shierholz of the left-wing Economic Policy Institute, who wrote in The New York Times last week that “cutting pandemic programs weakens their own recoveries”, and that Higher wages, without ending the benefits, could solve the perceived problems of labor shortages.
Real estate market issues 2008 style warning
The risk is highest in New Zealand, Canada and Sweden, but the US and UK follow closely behind.
“Risk gauges are issuing warnings at an intensity not seen since the run-up to the 2008 financial crisis,†wrote economist Niraj Shah.
The International Monetary Fund’s world house price index, which tracks 57 countries, is “well above its previous high in 2008 and is expected to rise further.”
The drivers: Low interest rates, government stimulus measures, foreclosure economies, limited housing stock and optimism about an economic recovery from the pandemic are all stoking the frenzy.
Shah writes that the coming period should be characterized by a market “cooling rather than collapsing” as interest rates remain low. Credit standards “are also generally higher than they were” before 2008. But when borrowing costs start to rise, real estate could “face a critical test.”
following
US housing starts and building permits for the month of May at 8:30 a.m. ET. The Federal Reserve’s latest interest rate announcement and a press conference with President Jerome Powell will follow at 2 p.m. ET.