Investors in Europe and Asia on May 31 struggled to build on last week’s gains as profit-takers stepped in while awaiting the next buying catalyst, with eyes on the upcoming release of key US jobs data.
Still, despite worries that the expected surge in economic activity this year will send prices soaring and force central banks to tighten monetary policy, a forecast-beating jump in a closely watched US inflation gauge was taken in stride.
The calm reaction marked a change from recent times, with benchmark 10-year Treasury yields, a key gauge of future interest rates, inching down slightly.
AMP Capital’s Shane Oliver said: “There is likely more upside to go on the inflation scare front in the months ahead as base effects, the lagged impact of commodity price hikes and bottlenecks continue to feed through, but there are now a few more signs that it will be transitory.”
All three main US indexes ended May 28 with small gains, though Asia fluctuated.
Tokyo, Hong Kong, Sydney, Singapore and Manila dipped but there were gains in Shanghai, Seoul, Mumbai, Taipei, Jakarta, Bangkok and Wellington.
There was little reaction to figures indicating growth in China’s factory activity slowed slightly in May.
Paris was flat in midday trade while Frankfurt dipped. London and Wall Street were closed for holidays.
Focus is now on the release of US jobs figures this week, which will provide a fresh update on the state of the world’s top economy as it emerges from last year’s pandemic-induced collapse.
Meanwhile, the OECD raised its global growth forecast for this year but warned that “too many headwinds persist” as not enough Covid vaccines are reaching emerging economies. It said it saw expansion of 5.8 per cent, up from a previous estimate of 5.6 per cent.
Patrik Schowitz of JP Morgan Asset Management said: “It still feels like a market looking for direction in the face of uncertainty around the interplay between much-feared inflation and much-hoped-for growth recovery.
“There still seems an extended growth runway ahead as further regions around the globe get the Covid and vaccination situation under control – nothing we’re seeing is really challenging that expectation, although it will take time, especially across some of the major emerging market economies.”
Oil prices edged up and were approaching levels not seen since January last year before the pandemic hammered demand.
Crude traders are also keeping tabs on a meeting of OPEC and other major producers on June 1 where they will decide on whether or not to lift output as the world economy bounces back.
They will also be looking for any comments on the prospect of Iranian oil returning to the market if Tehran reaches a new nuclear agreement with global powers.