Market snapshot: all eyes on the data

Another week of economic reports and key data will provide a focus for inflation and interest rate watchers.

A raft of economic data this week on both sides of the pond will further inform both the rate of economic recovery and any inflationary effects.

In the US, particular focus will fall on the Federal Reserve announcement and the accompanying comments. The Fed is largely expected to maintain its current level of monetary assistance, and is again expected to reiterate its view that the current inflationary spike is a passing phase. Even so, there have more recently been suggestions that discussions on tapering relief are likely to be nearing the top of the agenda, even if this does not lead to imminent action.

Elsewhere, the producer prices index and retail sales readings will add further colour to the picture. Retail sales are expected to drift slightly from the previous month’s figure, which was boosted by the stimulus cheques sent out to individuals being spent. However, the consumer is the main driver of the US economy and, as such, the number will give further evidence as to the speed of the return to normality as further lockdown easings and the vaccination programme accelerate.

Markets are increasingly sanguine on inflation concerns, although the issue has not disappeared entirely. This has resulted in further progress for the indices, with the Dow Jones up by 12.7% in the year to date, the S&P 500 13.1% (and hitting another new record high) and the Nasdaq 9.2%.

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In the UK, the likelihood of an extension to the current lockdown restrictions is something which the market is expecting. Hospitality and travel stocks in particular have seen another downward lurch, with the additional complication of certain of the government assistance schemes also nearing an end. There is therefore likely to be something of a compromise along the way, as the government is likely to play the cautious health card ahead of completely letting the economy loose.

In the meantime, economic recovery has been surprisingly robust. Unemployment and retail sales readings this week are both likely to show further improvement, while the inflation number may well have ticked higher following some bottlenecks in the supply chain.

The FTSE 250 is seen as a more accurate barometer for the UK economy, and has been the main beneficiary of the recovery, having risen 11.4% in the year to date.

The premier index is not far behind with a rise of 10.8% so far this year, with the level of the index still being seen as undemanding on valuation grounds compared to many of its global peers.