A shortened trading week on both sides of the pond will see further focus on inflationary pressures and whether the global recovery is becoming entrenched.
Further focus on inflationary pressures
In the US, non-farm payrolls on Friday follow on from an expectedly weak reading of 266000 in April, with the consensus being that 650000 jobs will have been added. Another disappointing number would lessen some of the pressure on the Federal Reserve to wind down its stimulus programme.
This would be in contrast with a stronger than expected PCE, or Personal Consumption Expenditures, figure at the end of last week. The figure is said to be the Fed’s preferred measure of inflation since it is a broader measure of inflation which also captures consumer behaviour. The reading of 3.1% was ahead of the expected 2.9% and could have further scope to increase as pricing power is rekindled following supply bottlenecks.
The strength of the recovery is becoming increasingly evident, with the economy’s ability to keep pace in terms of employment and materials in question. Comparative numbers are somewhat meaningless in certain sectors given the shutdown of a year ago, but the general improvement has been sufficient to propel markets in anticipation of stronger company earnings.
As such, the Dow Jones is now up by 12.8%, the S&P500 11.9% and the Nasdaq 6.7% in the year to date.
The UK has also seen the benefit of the switch to early cyclical stocks, with the economy generally holding up better than had been feared for the moment. Questions still remain over the fate of the hospitality and tourism sectors given travel restrictions and even the vague possibility of the full release of lockdowns being delayed, while the eventual withdrawal of government assistance is likely to put pressure on the general level of unemployment.
Even so, on both valuation grounds and as an investment destination, the FTSE100 has added 9.2% in the year to date, illustrating its additional attraction as being something of a proxy for the global economic recovery with an estimated 70% of earnings coming from overseas.
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