16th June 2021 Morning Report

Wednesday 16th June 2021

Wall Street’s main indices closed lower on the back of the latest data showing stronger inflation and weaker U.S. retail sales in May. This further worried already-jittery investors awaiting the results of the Federal Reserve’s latest policy meeting.

U.S. retail sales dropped more than expected in May, with spending rotating back to services from goods as vaccinations allow Americans to travel and engage in activities that had been restricted by the pandemic. However, the trend in retail sales remains strong. Retail sales increased 0.9%. Economists had forecast retail sales declining 0.8%.

With more than half of eligible Americans are fully vaccinated, this is likely to boost demand for air travel, hotel accommodation, dining out and entertainment etc.

Rising overall consumer demand, fuelled by trillions of dollars from the government and record-low interest rates, is straining supply chains and helping to push inflation. The Labour Department said on Tuesday its producer price index for final demand increased 0.8% last month after rising 0.6% in April. In the 12 months through May, the PPI accelerated 6.6%, the largest gain since November 2010. In the light of the latest PPI and CPI data, economists are forecasting that the core personal consumption expenditures price index, would push the year-on-year rate to about 3.4% from 3.1% in April. However, Fed Chair Jerome Powell remains adamant that higher inflation will be transitory.

Fed officials are in the midst of a two-day policy meeting. Observers will be watching to see if the Fed gives any indication as to when and how it will withdraw some of the support to the economy. The Fed is expected to emphasise that more progress towards a recovery is needed before they slow their bond purchases.

There was some encouraging news on supply bottlenecks, with the Federal Reserve reporting production at factories increased 0.9% in May and more easing of the supply squeeze could help to slow inflation and support retail sales.

Morning Report 16 June 2021

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