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Pre-marketing actions: every investor wants an answer to this question

What’s happening: There is growing concern that a strong economic recovery later this year could cause inflation to spike. This triggered a liquidation of government bonds. When prices fall, returns rise, which weighs on stocks.

Without a big bump on Friday, the S&P 500 – which has fallen over the past three trading sessions – will enter its third straight week of declines, as the benchmark 10-year US Treasury yield will return to around 1.6%.

“With the Covid-19 vaccine enabling the recovery of economic activity, coupled with further injections of fiscal stimulus in sight, investors are keeping the narrative that inflation could make a comeback,” the analyst said Han Tan FXTM market to clients on Friday.

In recent days, Wall Street has focused on one big question: If significantly higher prices materialize, will Federal Reserve Chairman Jerome Powell and other policymakers get their stomachs?

Powell said in an event Thursday that he expected inflation to rise as the economy reopens. But he stressed that the Fed does not intend to change course as a result, as low interest rates and bond purchases will continue to be necessary to support the ongoing recovery.

“Compared to the economic scenarios we envisioned a year ago, it’s good to see where we are,” said Powell. The Fed, he added, will try to differentiate between “a one-time price surge and continued inflation”.

Easy monetary policies like the lowest interest rates have been a boon to riskier investments like stocks over the past year. Wall Street fears the mood will change when rates start to rise again.

These fears are at the heart of concerns with Friday’s jobs report under pressure. Economists polled by Refinitiv expect to learn that the US economy created 182,000 jobs in February, up from 49,000 in January.

It’s certainly an improvement, but it would still leave Americans with millions of jobs since the start of the pandemic. Such a reading may reassure Wall Street that any discussion of the Fed’s tightening policy is premature.

Investors will, however, be particularly attentive to unexpected signs of wage inflation. Average hourly compensation is expected to have increased by 0.2%.

Watch this space: US prices don’t exist in a vacuum. One of the reasons inflation has been so low in recent decades has been thanks to China, which served as the global factory for low-cost products.

The country said on Friday it would aim for economic growth of more than 6% in 2021. A strong recovery in China could help keep prices low. But there are fears that the economic legacy of the pandemic could permanently hamper supply chains and reduce manufacturing capacity. This dynamic could contribute to inflation.

Oil prices skyrocket after producers extend production cuts

Countries are starting to look to life after the pandemic. But oil producers, worried about upsetting the delicate price dynamics, are not rushing to put more barrels on the market.

The latest: The Organization of the Petroleum Exporting Countries and its allies said on Thursday they would largely extend production cuts through April, reports my CNN Business colleague Charles Riley.

Two countries – Russia and Kazakhstan – have obtained exemptions to slightly increase their production.

Remember: the OPEC + group agreed in January to keep production stable for February and March. At the time, Saudi Arabia surprised markets by pledging to cut production by an additional million barrels per day, a move that reflected unease over fragile demand.

Saudi Arabia agreed on Thursday to extend its further cut until April. Including this contribution, supply reductions for the group as a whole amount to nearly 8 million barrels per day.

In recent months, rising prices have made producers more convinced that the market is on solid footing after its pandemic collapse. But for now, the group is choosing to play it safe.

Investor insight: Oil prices rise as a result. US oil was last trading above $ 65 a barrel for the first time since January 2020. Futures on Brent, the global benchmark, are close to $ 68.50.

UBS oil analyst Giovanni Staunovo believes U.S. oil prices will rise to $ 72 a barrel later this year if the expected surge in energy demand materializes as economies reopen.

“With a cautious approach to OPEC + and limited production growth outside the group, oil inventories are expected to drop rapidly in April,” Staunovo told customers.

This would continue to support prices. Customers could also start paying more for gasoline at the pump. AAA said Thursday that the US average for a gallon of regular gasoline rose two cents this week to $ 2.74.

Container shortage hits companies like Costco

A global shipping container shortage triggered by the pandemic is pressing businesses around the world.

Costco (COST) is the last to sound the alarm. CFO Richard Galanti told analysts after markets closed on Thursday that container shortages contributed to delays in the delivery of furniture, sporting goods, lawn and garden equipment and even some products. food, including seafood, imported cheeses and oils.

“We expect these pressures to subside in the coming months, but it affects everyone, of course,” Galanti said.

What’s Happening: According to Hillebrand, a logistics company, containers were stranded in North America and Europe at the start of the pandemic and were unable to return to Asia. There was no time to clear the backlog before more started to arrive.

The firm says production of new containers remains “woefully low” and that the prices of those in the market have skyrocketed. Hillebrand doesn’t expect the situation to normalize until later this year.

The costs are passed on to customers like Costco, which said on Thursday that sales were up nearly 15% from a year ago in its most recent quarter, as customers continued to stock up on food and cleaners. Shares are down nearly 2% in pre-market trading.


The U.S. Jobs Report for February publications at 8:30 a.m. ET.

Coming up: It’s been almost a year since markets collapsed as fears of Covid-19 overtook Wall Street. Check back on Sunday to see what has happened since then – and where we might be heading next.


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