Market Update

The market's fixation on inflationary pressures persisted this week, as the US Producer Price Index (PPI) recorded a 1% increase in March, bringing its annual growth to 4.2%. The PPI, which gauges wholesale price fluctuations, serves as a reliable indicator of inflation trends.
While this PPI reading offers a preview of what to anticipate when the US discloses its Consumer Price Index (CPI) inflation rate next week, we've emphasized repeatedly in these Market Summaries that a significant surge in inflation in the upcoming months is practically inevitable.
Inflation is always assessed as a percentage change relative to prices from the previous year. Due to a combination of OPEC supply cuts and a more optimistic economic outlook, oil prices have rebounded strongly following their dramatic collapse in April of 2020. Consequently, as the lower 2020 oil prices are replaced by the higher 2021 oil prices, year-on-year inflation figures in the coming months will experience a rapid acceleration, commonly referred to as the 'base effect.'
However, as we've previously argued (in contrast to the prevailing view among many prominent economists), this impending inflation upswing will likely be short-lived. In fact, we anticipate that inflation will recede rapidly next year. Consequently, we expect central banks such as the US Federal Reserve, Bank of England, European Central Bank, and Bank of Japan to overlook these inflation readings and maintain loose monetary policies.
Fortunately, our perspective received support this week from dovish statements made by several policymakers at the US central bank, including Federal Reserve Chair Jay Powell. He cautioned that the uneven distribution of coronavirus vaccines would result in an "uneven" global economic recovery. This doesn't sound like a Federal Reserve contemplating interest rate hikes in the near future. We've been in the investment management arena long enough to fully appreciate the adage, "don't fight the Fed," and it's worth noting that accommodative monetary policies tend to benefit equity markets.
Looking ahead to the upcoming week, our attention will be on the market's response to the US CPI inflation data scheduled for Tuesday, April 13, 2021. Other noteworthy US data releases include retail sales and the Empire State Manufacturing Index on Thursday, April 15, 2021, as well as housing data and the University of Michigan Consumer Sentiment Index on Friday, April 16, 2021.
Beyond that, we have UK industrial and manufacturing production figures, Eurozone Consumer Price Index (CPI) data, Chinese Q1 GDP, Chinese retail sales statistics, and Japanese Producer Price Index (PPI) data on the economic calendar.