Inflation

There was a fairly neat correlation on Friday between rising oil prices and the strengthening Norwegian krone. The krone added average of 0.7% against the majors. It was the only currency that really moved: Otherwise, the widest gap was the 0.6% that separated the second-placed Swedish krona from the US dollar at the back of the pack.

As an indication of just how dull it all was, sterling, the euro, the Swiss franc and the Canadian and Australian dollars were as good as unchanged against one another. The NZ dollar was a touch higher and the Japanese yen a little lower. Equity prices moved gently higher everywhere as investors put to the back of their minds the inflation concerns that had so troubled them earlier in the week.

It remains to be seen if that newfound relaxation is justified. The Federal Reserve chairman has repeated endlessly his mantra that the recent rise in consumer prices is “transitory” but economic commentators are far from unanimous in their endorsement of that line. A google News search for “inflation” pulls up 53 million results, and at least the first dozen pages are anything but reassuring. At the top of the list, The Daily Telegraph claims that “Inflation is about to raise its ugly head once more”. The FT ponders over “The summer of inflation: will central banks and investors hold their nerve”. For good measure, “Former ECB chief economists warn of Eurozone debt trap if inflation comes back”.

Weaker sales, weaker sentiment

The two biggest items on Friday’s ecostat agenda were US retail sales and the provisional index of consumer sentiment from the University of Michigan. Both were disappointing. Neither had much influence on the dollar, which lost an average of 0.4%.

Retail sales were flat in April, having been expected to rise 1%. More disappointingly, it was not blockages in car-makers’ microprocessor supply train that caused the problem: sales of ex-autos were down by 0.8% on the month. The stall was apparently the result of stimulus-cheque-induced spending having run its course. Michigan University’s sentiment survey unexpectedly fell to a provisional 82.8 in May, where an increase to 90.4 had been forecast. The report blamed inflation, both reported and anticipated.

The rest of Friday’s list consisted of also-ran ecostats and events. The Account (the redacted minutes) of the European Central Bank’s April policy meeting was unilluminating. For example; the Governing Council was “ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry”. Canadian manufacturing sales picked up by 3.5% in March to their highest level since June 2019, while wholesale sales were up by 2.8%.

Chinese retail sales “disappoint”

Although they were not the first out of the traps this morning it was the Chinese data that attracted most attention ahead of London’s opening. Industrial production in April was 9.8% higher on the year, as forecast. Machine tool orders were up by 120.8%. But retail sales were only 17.7% higher on the year; a 24.9% increase had been expected.

Data from New Zealand earlier had put Business NZ’s performance of services index at 61.2, a record high, and visitor arrivals (from abroad) were down by an annual 97.4%, as could have been expected in view of the closed border. Rightmove’s index of UK house asking prices rose 1.8% in May.

The ecostats yet to come today cover Canadian housing starts, the US NAHB housing market index and America’s Empire State manufacturing index. The Bank of England’s Gertjan Vlieghe and Andy Haldane will be speaking this afternoon.