China announces three-child policy

Inflation has become a major concern amid the massive monetary and fiscal stimulus enacted by governments around the world in response to the COVID-19 pandemic.

Over the long term, however, demographic forces will play an important part in sustaining inflationary pressures.

Back in the 1990s and 2000s, China was a source of global deflationary pressure due to its large workforce becoming integrated into the global economy. That trend is now reversing as China's low birth rate leads to a shrinking workforce.

On Monday, China announced that each couple would be permitted to have up to three children. It had scrapped its one-child policy in 2016.

The latest move comes after a census showed early this month that China's population grew at its slowest rate during the last decade since the 1950s, with data showing a fertility rate of 1.3 children per woman for 2020.

Markets rise, US inflation jumps

Markets were mostly higher on Friday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.6 percent and the Nikkei 225 surged 2.1 percent.

Investors largely shrugged off a report showing that the US core personal consumption expenditures index rose 3.1 percent in April.

“Inflation pressures might get worse before they get better,” wrote Jefferies economist Aneta Markowska.

Jamie Cox, managing partner at Harris Financial Group, said that in the meantime, with real yields still low, this is “the transitory sweet spot”.

Markets higher as US jobless claims hit pandemic low

Markets were mostly higher on Thursday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Shanghai Composite rose 0.4 percent.

However, the Nikkei 225 fell 0.3 percent.

A report in the US on Thursday showed that initial jobless claims fell to 406,000 in the week ended 22 May, a new pandemic low.

“As the U.S. economy progresses with its vaccination program and reopening measures, employment and labor force participation are expected to pick up in the coming months,” said Ali Jaffari, head of North American capital markets at Validus Risk Management.

Markets eke out gains, “keep buying the dips”

Markets mostly eked out small gains on Wednesday.

The S&P 500 rose 0.2 percent, the Nikkei 225 rose 0.3 percent and the STOXX Europe 600 was flat.

Analysts remain optimistic.

Scott Wren, senior global market strategist at Wells Fargo, said that a strong economic recovery and low interest rates “should favor most equity markets globally, and especially those markets and sectors most closely correlated with economic growth”.

CNBC’s Jim Cramer said on Tuesday that “you need to keep buying the dips”.

Markets mixed, “in a holding pattern”

Markets were mixed on Tuesday.

Early in the day, the Shanghai Composite surged 2.4 percent.

However, the STOXX Europe 600 ended flat and the S&P 500 dipped 0.2 percent.

Tom Essaye, founder of Sevens Report, said in a note that the market is “in a holding pattern” until there is clarity on Fed tapering.

However, Jim Paulsen, chief investment strategist at the Leuthold Group, thinks that inflation fears have eased and growth stocks are regaining leadership.

Markets rise, debt levels a risk for emerging economies

Markets rose on Monday.

The S&P 500 rose 1.0 percent, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.2 percent.

With stocks rebounding from last week's falls, JPMorgan noted that the “‘buy the dip’ mentality has been remarkably strong this year”.

Tom Lee, head of research at Fundstrat Global Advisors, certainly appears optimistic, suggesting that “when equities break out of this range, the next move is a substantial rise higher”.

However, Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics, told CNBC on Monday that swelling debt levels in emerging economies may hold back their recovery.

“The debt loads rose most in emerging markets and they may have the most difficulty in terms of taking care of this debt going forward,” he said.

Inflation pressures building “fairly sharply”

Joel Naroff, president and chief economist of Naroff Economics LLC, recently said in an interview that inflation pressures are rising.

“There is no question that inflation pressures are building, and they are building fairly sharply,” he said.

“I think we have a greater risk that this will be an extended period of inflation rather than a transitory period,” he added.

A key driver of inflation could be rising wages.

“The economy is overheating and companies, even though we have a high unemployment rate, cannot get the labor they need to meet demand and they are being forced to raise wages,” said Jonathan Golub, chief US equity strategist at Credit Suisse.

Mark Zandi, Moody’s Analytics chief economist, sees a moderation in wage increases in the coming months.

“Things will settle down probably toward the fall as the supply side of the economy catches up and people get back to work and we’re on the other side of the pandemic,” he said.

However, he sees wages becoming an issue again in 2023 or 2024.

“Wage pressures will intensify and take a bigger bite out of corporate profits,” Zandi said. “Companies will try to raise prices.”

Markets mixed amid positive economic data

Markets were mixed on Friday.

The S&P 500 fell 0.1 percent but the STOXX Europe 600 rose 0.6 percent.

Earlier in Asia, the Shanghai Composite fell 0.6 percent but the Nikkei 225 rose 0.8 percent.

Economic data on Friday were positive.

In the US, the IHS Markit flash manufacturing PMI rose to an all-time high of 61.5 in May from 60.5 in April.

In europe, the IHS Markit flash eurozone composite PMI rose to 56.9 in May from 53.8 in April while the UK composite PMI rose to 62.0, the highest since the survey was launched in 1998, from 60.7.

Scott Ruesterholz, a portfolio manager at Insight Investment, said that “we anticipate meaningful labor market improvement in coming months” in the US.

Adam Crisafulli, founder of Vital Knowledge, said in a note that “stocks should be fine so long as the Fed doesn’t signal a taper before Nov”.

Markets rise, US economy “humming along”

Markets rose on Thursday.

The S&P 500 rose 1.1 percent, the STOXX Europe 600 rose 1.3 percent and the Nikkei 225 rose 0.2 percent.

A report in the US on Thursday showed that the number of first-time claims for unemployment benefits for the week ended 15 May came in at 444,000, the lowest since 14 March 2020.

“The jobless claims read shows once again that that we’re heading in the right direction,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial.

“The economy is doing a little bit better than people expect. It's actually humming along,” Honeywell CEO Darius Adamczyk told CNN.

However, the improvement in the economy is driving up inflation.

“We are seeing accelerating inflation, both in terms of material and labor,” said Adamczyk.

Markets fall, Fed “really going to have to lift its policy rate”

Markets fell on Wednesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 plunged 1.5 percent and the Nikkei 225 fell 1.3 percent.

US stocks did manage to recover most of the sharp falls suffered early in the session, when they were weighed down initially by a sudden plunge in cryptocurrencies and later by the minutes of the last Federal Reserve monetary policy meeting that said that “if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases”.

In Europe, a report from the UK showed that consumer prices rose by 1.5 percent in April, more than double the 0.7 percent rise in March.

Melanie Baker, senior economist at Royal London Asset Management, said that “as the economy reopens, it seems likely that we will see some further price increases and inflation is likely to end the year higher”.

Indeed, some economists think that fresh waves of COVID-19 cases in major manufacturing hubs in Asia could hit global supply chains and could cause inflation to rise quicker.

“I think by the end of this year, the Fed is really going to have to lift its policy rate,” said Richard Martin, managing director of IMA Asia.

S&P 500 falls, ″not a bull-market breaker yet”

Markets were mixed on Tuesday.

The S&P 500 fell 0.9 percent but the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 surged 2.1 percent.

Despite a second consecutive decline in the S&P 500, some analysts remain sanguine.

″Growth may be peaking, but it’s not a bull-market breaker yet,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

Markets fall amid “overbought” signs

Markets were mostly lower on Monday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 dipped 0.05 percent and the Nikkei 225 fell 0.9 percent.

Some analysts remain optimistic on stocks.

Mark Haefele, UBS’ chief investment officer, said that while inflation data could drive further bouts of volatiliy, “we don’t see inflation concerns ending the rally in stocks”.

However, other analysts are cautious.

Nikolaos Panigirtzoglou, a managing director at JPMorgan, said in a note that last week’s volatility is “also a warning sign of how overbought equity markets have become”.

“Investor and equity analyst reactions to earnings results reveal skepticism that 1Q beats provide a reason for additional forward-looking optimism,” wrote David Kostin, Goldman Sachs’ chief US equity strategist.

S&P 500 declines but outlook “constructive”

The S&P 500 fell 1.4 percent last week.

There was considerable volatility throughout the week. The S&P 500 fell 4.0 percent on the first three days, then recouped some of those losses over the last two days.

Analysts mostly remain optimistic.

“I think the fact we bounced at the end of the week is constructive,” said Art Hogan, chief market strategist at National Securities.

“The S&P 500 held the 50-day moving average, which is constructive,” said Scott Redler, chief strategist at T3Live.com. “The tech sector, which has been under pressure, held its yearly uptrend earlier in the week.”

Victoria Fernandez, chief market strategist at Crossmark Global Investments, noted that investment-grade and high-yield credit spreads were not flashing any warning signs.

“That’s saying the credit market is not concerned right now,” said Fernandez.

Markets rise, Covid-19 variant from India a threat

Markets rose on Friday.

The S&P 500 jumped 1.5 percent, the STOXX Euroipe 600 rose 1.2 percent and the Nikkei 225 surged 2.3 percent.

“The corporate turnaround is strong enough to keep markets rising, even as bond yields increase in anticipation of central bank tightening,” Robert Buckland, equity strategist at Citi, said in a note.

Still, stocks may not be out of the woods.

“There needs to be a correction into the summer that is meaningful enough to eliminate the extreme intermediate-term overbought condition and excess optimism,” said Tony Dwyer, chief market strategist at Canaccord Genuity.

Also, even as the US and elsewhere ease COVID-19-related restrictions, the UK warned on Friday that the variant from India has the potential to derail the easing process.

England’s chief medical officer, Chris Whitty, said that there is “confidence” that the variant is “more transmissible” than the variants already circulating in the country.

UK Prime Minister Boris Johnson said that “this new variant could pose a serious disruption to our progress”.

S&P 500 rebounds, “bull market has further to run”

Markets were mixed on Thursday.

The S&P 500 jumped 1.2 percent but the STOXX Europe 600 dipped 0.1 percent and the Nikkei 225 plunged 2.5 percent.

“This bull market ultimately has further to run,” said Keith Lerner, chief market strategist at Truist.

“We do not think that yesterday’s inflation print changes the longer-term case for inflation after the reopening trade, and that is what ultimately matters for markets,” AB Bernstein strategist Inigo Fraser-Jenkins said in a note.

Indeed, investors shrugged off another high inflation report on Thursday, with producer prices in April jumping more than 6 percent from a year ago.

S&P 500 plunges as CPI jumps

US stocks plunged on Wednesday, with the S&P 500 falling 2.1 percent.

Asian markets also fell sharply. The Taiwan Stock Exchange sank 4.1 percent and the Nikkei 225 tumbled 1.6 percent.

However, the STOXX Europe 600 rose 0.3 percent.

The US stock market was spooked by a report that showed that the consumer price index jumped 4.2 percent in April from a year ago and 0.8 percent from the previous month. Core CPI increased 3 percent from the previous year and 0.9 percent from the previous month.

“Investors who may have been looking for a reason to lighten up on a stock market that was up more than 10% year to date found a good one: rising inflation,” Chris Hussey, a managing director at Goldman Sachs, said in a note.

Markets fall, US labour shortages “widespread”

Markets fell on Tuesday.

The S&P 500 fell 0.9 percent, the STOXX Europe 600 tumbled 2.0 percent and the Nikkei 225 plunged 3.1 percent.

The Nasdaq Composite came off early lows though to end 0.1 percent lower.

A report on Tuesday showed that job openings in the US rose 597,000, or 8 percent, to a record high of 8.12 million, but hires rose just 215,000, or 3.7 percent, to slightly more than 6 million.

Michael Pearce, senior US economist at Capital Economics, said that the report showed that “labor shortages are widespread, pushing up prices and potentially acting as a brake on the recovery”.

Quincy Krosby, chief market strategist for Prudential Financial, said the report suggests “the need to boost wages”.

Nasdaq plunges, tech stocks see “aggressive selling”

Markets were mixed on Monday.

The S&P 500 fell 1.0 percent, European markets were mixed while Asian markets rose.

Tech stocks were the biggest losers on Monday, with the Nasdaq Composite plunging 2.5 percent.

Adam Crisafulli, founder of Vital Knowledge, noted that the technology sector “is seeing aggressive selling and accumulating technical damage as prices breach key levels”.

S&P 500 at record high, Fed may need to begin tapering

The S&P 500 rose 1.2 percent last week to a record high.

US stocks gained despite a disappointing US April employment report on Friday.

Some analysts attributed the rise in stocks to the expectation that the Federal Reserve will be likely to maintain easy monetary policy.

“It certainly takes the pressure off the Fed and takes an imminent rate increase off the table,” said JJ Kinahan, chief market strategist at TD Ameritrade. “We’re not going to see inflation in wages, and we don’t have as many people employed as we thought, so we have to keep the party going.”

However, other analysts think that the weaker-than-expected job growth was due to a shortage of labour supply, which would not be responsive to monetary policy.

“I think this is just as much about a shortage in labor supply as it is about a shortage of labor demand,” said Jason Furman, an economist at Harvard University and a former Obama administration advisor. “If you look at April, it appears that there were about 1.1 unemployed workers for every job opening. So there are a lot of jobs out there, there is just still not a lot of labor supply.”

That is a view shared by Mohamed El-Erian.

Indeed, when asked whether he thinks the Fed should begin tapering monetary easing despite the jobs report, El-Erian replied: “I do. Because I think that this is a supply issue and not a demand issue. And I really worry about financial instability, and I worry about unanchoring inflationary expectations.”

US jobs disappoint, stocks hit record highs

Markets rose on Friday.

The S&P 500 rose 0.7 percent to a record high, the STOXX Europe 600 rose 0.9 percent to a record high and the Nikkei 225 rose 0.1 percent.

US stocks shrugged off a disappointing April employment report, which showed 266,000 jobs created last month.

“It was a disappointing read on job creation and brings into question the assumption that Q2 is going to carry-forward the positive momentum established at the beginning of the year,” Ian Lyngen, head of US rates at BMO, said in a note.

Still, Richard Flynn, UK managing director at Charles Schwab, said that “across economic metrics -- from GDP to retail sales to job growth -- boom conditions are evident”.

Also, JJ Kinahan, chief market strategist at TD Ameritrade, said: “It certainly takes the pressure off the Fed and takes an imminent rate increase off the table.”

Markets mixed, “vulnerable to significant declines”

Markets were mixed on Thursday.

The S&P 500 rose 0.8 percent and the Nikkei 225 surged 1.8 percent. However, the STOXX Europe 600 fell 0.1 percent.

US stocks rose after a better-than-expected reading on jobless claims. First-time claims for unemployment insurance totalled 498,000 for the week ended 1 May, a pandemic-era low.

“Today’s read is another proof point that we’re one step closer to full economic recovery, sooner than some may have expected,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial.

“Given that we expect the economy to grow well above trend this year and next, value stands to benefit,” said Keith Lerner, chief market strategist at Truist.

However, a Federal Reserve report released on Thursday warned that rising asset prices in the stock market and elsewhere pose increasing threats to the financial system.

The report said that “valuations for some assets are elevated relative to historical norms even when using measures that account for Treasury yields” and thus “asset prices may be vulnerable to significant declines should risk appetite fall”.

In an accompanying statement, Fed Governor Lael Brainard said: “The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.”

Markets rise, US consumers neutral on stocks

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.1 percent and the STOXX Europe 600 surged 1.8 percent.

Economic data on Wednesday were mostly positive.

In the US, private payrolls rose by 742,000 jobs in April according to ADP, the IHS Markit US services PMI came in at 64.7 for April while the ISM non-manufacturing index came in at 62.7.

In the euro area, the IHS Markit final composite PMI for April came in at 53.8, up from 53.2 in March.

Despite the rally in stocks and the recovery in the economy, US consumers are still skeptical about stocks.

According to a survey by the Conference Board, expectations for a decrease in stock prices over the next 12 months has fallen to a neutral level after being elevated amid the COVID-19 pandemic, far away from reaching excessive levels that would trigger a contrarian sell signal.

Tech stocks lead market falls

Markets were mostly lower on Tuesday.

The S&P 500 fell 0.7 percent and the STOXX Europe 600 fell 1.4 percent.

Technology stocks saw the biggest losses, with the Nasdaq Composite plunging 1.9 percent.

“It’s a combination of a sell-off on the winners of the past months... with the month of May and a ‘nervous’ positioning,” said Angelo Meda, portfolio manager at Banor SIM in Milan.

Adding to concerns for investors were comments by US Treasury Secretary Janet Yellen that interest rates may rise.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” Yellen said during an economic forum presented by The Atlantic.

Markets rise amid positive manufacturing data

Markets were mostly higher on Monday.

The S&P 500 rose 0.3 percent and the STOXX Europe 600 rose 0.6 percent.

Economic data on Monday were positive, with Markit's manufacturing PMI rising in April in both the US and the euro area to 60.5 and 62.9 respectively, the latter a record high.

However, the Institute for Supply Management's US manufacturing PMI for April came in at 60.7, down from 64.7 in March.

US stocks were also boosted by news that most capacity restrictions will be lifted across New York, New Jersey and Connecticut this month.

In Europe, analysts at BCA Research noted that COVID-19 infections are stabilising in many countries and vaccinations are gathering pace. “This will allow authorities to ease restrictions and economic activity to accelerate,” they wrote.

India COVID-19: Industry body urges "maximal response measure"

COVID-19 is continuing to take a heavy toll in India.

On Monday, the country reported 368,147 new cases, the twelfth consecutive day infections has exceeded 300,000, and 3,417 deaths from the disease.

"In my opinion, only a national stay at home order and declaring medical emergency will help to address the current healthcare needs," said Bhramar Mukherjee, an epidemiologist with the University of Michigan.

The situation in India has become so dire that even the country's industry, often the opponents of restrictions in other countries, has urged curbs to economic activity to save lives.

Uday Kotak, managing director of Kotak Mahindra Bank and president of the Confederation of Indian Industry, said a "maximal response measure at the highest level is called for to cut the transmission links", including "curtailing economic activity to reduce suffering".

Markets fall, euro area in recession

Markets fell on Friday.

The S&P 500 fell 0.7 percent, the STOXX Europe 600 fell 0.3 percent and the Shanghai Composite fell 0.8 percent.

Economic data on Friday were mixed.

In the US, consumer spending rose a better-than-expected 4.2 percent in March.

However, in the euro area, GDP fell 0.6 percent in the first quarter, a second consecutive quarterly decline that means that the region technically fell into recession.

In China, the official manufacturing PMI fell to 51.1 in April from 51.9 in March.

“In our view, the global economy will benefit from spill‑overs via higher US imports,” wrote Kim Mundy, a senior economist and currency strategist at the Commonwealth Bank of Australia. “The combination of low interest rates, an improving US economy and an improving global economy is a recipe for the USD to continue on its downward trend.”