Equities and Dollar Gain on Increasing U.S. Inflation

18

On Friday, the US dollar gained against major currencies and global equities rose, as new data increased concerns about rising inflation and heated economic activity due to pent-up demand. According to a report from the US Commerce Department, there was a 3.1% increase in consumer prices this year until April, which blew past the 2% target set by the Federal Reserve and marked the largest annual gain that has been seen since 1992. The first quarter also saw an 11.3% increase in consumer spending at an annualized rate, which is responsible for more than two-thirds of economic activity in the United States.

With rising vaccination easing the grip of the COVID-19 pandemic, the increase in consumer spending positions the economy for strong growth. There was a 0.043% increase in the dollar index against major currencies, as it reached 90.053 after it made some gains in trading in the early morning session. However, there is a 1.34% decline in the index for the month. Late on Thursday, the benchmark U.S 10-year Treasury Yield fell from 1.61% to 1.5807%, as opposed to the end of April when it was 1.6310%. Market strategists said that this was another indicator of accelerating inflation, but it seems that markets are comfortable with it, even if many investors are concerned.

There was a 0.31% increase in the broadest MSCI index of world stocks as it reached 711.15. Its monthly increase was about 1.4%. There was a 0.57% gain in European stocks, as they reached 448.98. This week, investors have watched as various officials from the Federal Reserve came out to ease inflation jitters ahead of the report released on Friday and hint at a possible start to discussions about tapering economic stimulus. Randal Quarles, the vice chairman for supervision at the Fed, also joined the chorus on Thursday when he said that they were committed to keeping the monetary policy running as is while jobs make a recovery.

On Wall Street, gains were seen in all major indexes in the early afternoon and these were led by healthcare, technology, financial stocks, and real estate. There was a 0.19% increase in the Dow Jones Industrial Average, while a 0.08% gain was seen in the S&P 500. As for the Nasdaq Composite, it climbed up by 0.09%. The Dow increased by 1.94% for the month, while a 0.55% gain was seen in the benchmark S&P 500 and there was a 1.53% decline in the Nasdaq.

Overnight in Asian markets, there was a more than 2% increase in Tokyo’s Nikkei, which allowed it to end the month higher by 1.17%. On Friday, there was a 0.46% increase in the broadest index of the MSCI for Asia-Pacific shares other than Japan and a monthly increase of 0.3%. Experts said that for now, the markets were accepting what the Fed was saying, but the narrative will face some challenges if such numbers continue because scaling back the bond-buying scheme will not be enough to deal with such a situation if the numbers persist.