- London shares open positively
- Inflation remains the key driver of sentiment
- Oil rose sharply end of last week
The FTSE 100 is the only early riser as European equity markets opened the week broadly in the red as Chinese trade data maybe just weighed a touch with exports lower than forecast despite imports growing at the fastest clip in 10 years. In London, housebuilders led gains while basic resources stocks fell. Asian shares were mixed, US futures are slightly weaker this morning. It’s a light data docket today – all eyes on the inflation data from the US later in the week alongside the upcoming ECB meeting.
US stock markets finished the week in the green, with the S&P 500 up 0.6 per cent over the last 5 sessions to sit within just 0.2 per cent of its record high. Both the Dow Jones and Nasdaq rallied over the course of the last week. Energy stocks rallied firmly last week as oil prices rose 5 per cent. WTI spiked to $70 overnight in Asian trade but has since dipped to $69.0. Meme stocks resurfaced, with some spectacular gains for the likes of AMC and GameStop over the week despite some losses on Friday.
Friday’s jobs report was something Goldilocks-like: not too cold to douse confidence in the economic recovery in the US, but also not so hot as to make the Fed take its feet off the gas too early. The report showed 559k jobs added in May as the unemployment rate fell to 6.1 per cent. Investors didn’t think this was strong enough to worry the Fed into removing accommodation any time soon.
Inflation remains squarely in focus and the largest potential source of investors angst and market volatility this week. April’s CPI print jumped to 4.2 per cent, the highest since 2008. The month-on-month increase in the core reading of 0.9 per cent was the strongest since 1982. Given this, the monthly core reading will be the main focus as it will offer a guide on just how transitory or otherwise the pop in inflation is likely to be.
Treasury secretary Janet Yellen said higher rates would be a good thing. “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” she said in an interview with Bloomberg News. Yellen was not saying the Fed should raise rates now. She was talking in the context of infrastructure spending and how the fiscal half of the equation can do more to deliver the inflation that economists generally think is the right level.
“We've been fighting inflation that's too low and interest rates that are too low now for a decade," the former Fed president added. "We want them to go back to [a normal interest rate environment] … and if this helps a little bit to alleviate things then that's not a bad thing- that's a good thing.”
Elsewhere, the dollar is holding a touch firmer to start the morning session, rates are steady, and gold continues to ease back following Friday’s pop on the jobs report. Bitcoin trades at $36k this morning.
Neil Wilson is chief markets analyst at Markets.com
