US inflation key after encouraging CPI readings
Everything is looking a little flat in financial markets on Thursday, with most of Europe seeing small gains and US futures a mixed bag ahead of the open.
The week’s big data release gave the markets a small bump on Wednesday as it took some of the pressure off the central bank even if it doesn’t change its plans around tapering.
Inflation being transitory is crucial to tightening of monetary policy being done in a gradual way and the CPI numbers aligned with the Fed’s narrative around price pressures this year.
It’s looking a little light on the data front for the rest of the week, with today’s PPI number the only remaining release of any real significance. The data yesterday was encouraging, but any signs here that it was a blip could unwind all of yesterday’s good feeling and replace it with anxiety once more.
Should the data offer further comfort on the other hand, equities could catch another bid and take further pressure off US yields and the greenback.
UK sees strong growth during second quarter reopening
The UK economy is almost back to its pre-pandemic size after growing 4.8% q/q in the second quarter, leaving it only 4.4% below its peak in Q4 2019.
While there was a slight downward revision to the Q1 figure and a small miss on industrial and manufacturing production, the data was very encouraging overall.
Strong growth in the second quarter was driven by consumer spending as lockdowns eased, with services output rising strongly in June ahead of the final restrictions being dropped in July.
This bodes well going into the third quarter and the July number next month will be very interesting indeed, as the UK moves ever closer to fully closing the gap on lost output during the pandemic.
The country is now in a very strong position going into the end of the year and next. Of course, this is contingent on the removal of restrictions not coming back to bite the government as infections rise.
But early signs are promising with the high take-up of vaccines meaning higher case loads are not leading to nearly the same levels of hospitalizations and fatalities as before. Of course, the Autumn and Winter months bring their own challenges.
The pound initially dropped following the data release, probably as a result of q/q GDP being in line and manufacturing and industrial production missing, but it quickly rebounded to trade back around the pre-release levels. While challenges remain for the UK, the pound could benefit from the continued recovery in the months ahead.