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  • Trish Matson

Signs of Transitory Inflation Lifts Equities



Global markets looked to edge higher on Thursday with suggestions that rising inflation seen in the US and Europe is transitory, providing investors with confidence. The major indices in the US, Europe, UK and Asia were all in the green, while the NZ market put the breaks on a brief rally.

Transitory inflation lifts US equities

US CPI rose by a higher-than-expected +0.6% m/m (+5.0% y/y) in May, while core CPI rose +0.7% (+3.8% y/y). US 10-year Treasury bond yields jumped to +1.53% immediately after the inflation news, but later waned to 1.47%, suggesting the market expects inflation to be transitory. That sentiment also seemed to be reflected in today’s strength in interest-rate sensitive growth and defensive equity sectors like technology (+0.7%), healthcare (+1.6%), consumer staples (+0.8%) and real estate (+0.7%). The Dow Jones Industrial (+0.4%), S&P 500 (+0.5%) and Nasdaq Composite (+0.7%) each made solid gains. Gamestop shares plummeted -21.2% after the popular retail investor stock announced a a major reshuffle of its board and a potential sale of stock that surprised investors given its recent SEC investigation announcement. Other "meme" stocks were in the red, such as AMC Entertainment (-11.0%), Koss Corp (-8.7%) and Blackberry (-5.3%). Shares in Pfizer advanced +1.9% on news that the US would pay the drugmaker ~US$3.5bn for 500m COVID-19 vaccine doses that it intends to donate to the 100 lowest income countries. A particularly bullish note from a Wall Street analyst saw shares of ServiceNow surge +4.7% to sit among the top performers, with the analyst predicting a 50% rally for the software company.

Lagarde boosts European investor confidence

ECB President Christine Lagarde today spoke about a number of pressing matters, notably indicating that the central bank will continue to run its stimulus program and bond buying until it judges the crisis is over (which could be beyond the current end date of March 2022), while also suggesting inflation in Europe will continue to rise in the second half but should eventually subside as transitory factors subside. The European Stoxx 600 closed flat while the UK's FTSE 100 added +0.1% driven by gains in BT Group (+6.6%) after 12% of the telco group was bought by billionaire Partick Drahi's newly formed Altice Group.

Asia Pacific stocks broadly in the green

Asian share markets turned around yesterday's losses, with major indices in the region broadly in the green ahead of the much anticipated US inflation data. The Shanghai Composite (+0.5%), Nikkei 225 (+0.3%) and Kospi (+0.3%) each made modest gains while the Hang Seng remained flat.

The ASX 200 closed at a record high after gaining +0.4% for the day, led by strong gains in the real estate and technology sectors. The NZX 50 snapped a little three day rally it had going since the shortened trading week started, with the index dropping -0.4% led by gains in Napier Port (+4.6%).

Oil and gold up

WTI crude oil rose +0.4% to US$70.25/MT while gold added +0.4% to US$1,894.96.

NZ Headlines

Mainfreight (MFT) chair Bruce Plested has sold NZ$75m in Mainfreight shares to buy more property in Waiheke. Plested continues to hold a nearly 15% stake in Mainfreight, down from 16.3% prior to the share sale.

Ethical consumption social enterprise CoGo has partnered with My Food Bag (MFB) to encourage customers to lower their carbon footprint and food waste, with MFB promoting CoGo's carbon footprint tracker app and considering eventually incorporating carbon footprints into its meal packages.

Norske Skog is expecting to conclude the sale of its mill assets at Kawerau in the second half of this year after confirming production will end by June 30.

NZX-listed agribusiness Scales Corporation is still in discussions about potentially buying wine maker Villa Maria, but the company remains tight-lipped about details.

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