Global markets: Focus shifts to US inflation after weak jobs data

Dubai: After employment figures came in much lower than expected in the world’s largest economy, worries on the slowing rate of global economic recovery have dampened investor sentiment yet again.

The US April employment report was extremely disappointing for investors with just 266,000 jobs created, well below the 1 million expected. However, while disappointed, stocks markets are also viewing the jobs data as one-off, for now.

US jobs data disappoints

The Friday report did cast uncertainty on the expectations of some investors that the US Federal Reserve will move toward paring back its quantitative easing bond purchases later this year.

Therefore, markets’ focus will shift squarely to US inflation rate in the week ahead, particularly with the consumer price index data being revealed this week.

If the inflation data appears alarming when the consumer price index is reported Wednesday, analysts view that this could resurface doubts about whether the Fed will have to tighten policy sooner than it earlier indicated.

Will inflation pick up?

Analysts further add that if the month-over-month inflation picks up steam, with a 0.3 per cent to 0.4 per cent growth, this will pressure the Fed.

However, economists expect April CPI to rise 0.2 per cent over March, after a gain of 0.6 per cent the month earlier. But on a year-over-year basis, CPI is expected to jump 3.6 per cent, according to Dow Jones, compared to 2.6 per cent the month earlier.

Investors will watch the US Treasury’s debt auctions for signs that demand remains steady after a yield surge roiled markets in the first quarter and fanned concerns that higher borrowing costs could hurt stocks, particularly growth sectors like technology.

The 10-year US Treasury bond yield, which moves opposite price, was at 1.55 per cent, down from 1.63 per cent a week ago.

Stocks largely gaining

The S&P 500 and Dow finished the past week with gains. The S&P rose 1.2 per cent, while the Dow gained 2.7 per cent. But the tech-heavy Nasdaq fell about 1.5 per cent for the week, even with Friday’s 0.9 per cent gain.

Global equities are down after three months of gains. But markets aren’t far off record highs and price falls may reflect a setback for tech mega-caps rather than a wholesale exit from stocks. And with real bond yields deeply negative, a selloff should be short-lived.

Elsewhere, after weeks of pandemic-induced lockdowns, a reopening of European economies is close, and boosting sentiment.

Germany to ease curbs?

Analysts add that Tuesday’s German ZEW sentiment survey, which measures the level of optimism that analysts have about the expected economic developments over the next 6 months, could confirm an improving outlook.

Germany might ease curbs on those fully vaccinated or recovered from COVID-19 as early as the weekend. France starts relaxing a night curfew and allowing restaurants to offer outside service from May 19.

After a sluggish start, the EU is expected to meet its target of delivering first vaccine doses to 70 per cent of adults by end-summer, the Euro Zone should get to 50 per cent in June, which will be received well by tourism-dependent economies.

Sell in May?

The first quarter likely marked the peak of the US growth and earnings rebound. Deutsche Bank predicts a 10 per cent correction in stocks.

Most central banks are not slowing money-printing or raising rates but money supply growth has evidently shrunk. In May questions surrounding inflation won’t go away quickly.

In China, data on credit and inflation due in coming days could shape the country’s outlook, with analysts seeing inflation pretty subdued while loan growth will probably grow in line with expectations.

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