Fed governors reiterate that inflation is transitory
Inflationistas look like they might be ready to throw in the towel. We are supposed to be seeing accelerating growth and mounting price pressures, but right now the surge across commodity prices has eased (copper, lumber, iron ore, and even soft grains), the housing market hit a top, and consumers’ short-term optimism retreated. The inflation debate is not over, but the majority of Wall Street believes it will be transitory.
Chicago Fed’s Evans noted that the recent inflation rise does not herald persistent move up and that he has not seen anything to change his support for Fed’s stance. Richmond Fed’s Barkin stated that market measures of inflation haven’t exceeded the Fed’s target.
US stocks struggled to hold onto earlier gains as consumer expectations have shifted to decelerating growth and softening labor market conditions for the months ahead.
Consumer
The Conference Board Consumer Confidence Index softened to 117.2 from a downwardly revised 117.5. Given the millions of job openings that are available, no one was surprised that the present situation improved to 144.3 from 131.9.
The Expectations Index showed a massive drop from 109.8 to 99.1, which could indicate that the peak is in for some of the robust data we have seen. If growth is already starting to slow down, this will support the argument that inflation will be transitory.
Housing Data
US new home sales in April declined by 5.9% to 863,000. The March reading was a monster print, so the downward revision from 1.021 million to 917,000 was taken in stride. The housing market is poised to cool down as inventories are tight, home builders are dealing with surging prices of lumber and concrete, and lastly while many Americans embrace the return of pre-pandemic life in the big cities. The housing market is still a bright spot for the economy, but COVID-induced demand is all gone.
Richmond
The Richmond Fed Manufacturing Index confirmed the pricing trends that emerged from both the Empire State and Philly Fed surveys. Availability of skills exemplifies the labor shortage and will continue to support the notion that the labor market recovery will take longer than everyone is expecting.
Moderna
Moderna shares rallied after their Phase 2/3 study of its COVID-19 vaccine (mRNA-1273) in adolescents met its primary immunogenicity endpoint, successfully bridging immune responses to the adult vaccination.
Moderna is also expected to deliver a single-dose COVID vaccine in India next year.
FX
Hungary
The Hungarian forint surged after the central bank reiterated that they are ready to tighten monetary conditions in a proactive manner to the extent necessary in order to ensure price stability and to mitigate inflation risks. Hungarian stocks tumbled as investors are now fully pricing in a rate hike at the June 22nd policy meeting.
Today’s policy decision saw the MNB leave the base rate and the overnight deposit rate unchanged at 0.60 percent and -0.05%, respectively, and the overnight and the one-week collateralized lending rates at 1.85%. The Hungarian central bank has been becoming more hawkish since the middle of May as they are determined to tackle inflation. The forint has been surging against the euro after the break of 355 and now could make a run towards 340.
Turkey
If the Turkish Central Bank had a theme song, it would probably be LMFAO’s Party Rock Anthem. Every day that central bank is shuffling. Turkey’s government has done it again, another deputy governor, this time Oguzhan Ozbas has been sacked and replaced by Semih Tumen. The CBRT is now filled with many inexperienced central bankers (4 of 7 with less than a year) that will likely support President Erdogan’s monetary policy theories. The Turkish central bank lost its independence a few years ago, so the market impact is waning, but still a catalyst that supports the longer-term bearish outlook for the lira.