June 11th, 2021
Higher consumer prices were no match for Wall Street bulls this week, who managed to push the S&P 500 to a new all-time high of 4,247.44 on Friday. That was the index’s 30th record high of 2021. The record-breaking run continued despite May’s Consumer Price Index (CPI) coming in red hot, rising 5.00% from year ago levels. That was the CPI’s highest reading since 2008, a period during which high oil prices were the culprit. Investors were quick to brush off the report as a quantitative and temporary phenomenon. The underlying CPI data showed that price growth is being driven predominantly by the fact that the comparison is being made relative to a much lower previous period. Furthermore, the largest price gains were observed in categories that are just now normalizing following sharp declines during the Covid pandemic. Inflation concerns were further soothed by trade data and other anecdotal data suggesting that demand is moderating for actual goods as Americans pivot to a greater consumption of services. April’s trade deficit figures showed that consumer demand for imported goods dropped month-over-month, which should help moderate some of the recent inflationary pressures. For the week, the S&P 500 added 0.41%.
Inflation’s Getting Hot Hot Hot
Consumer prices rose 5% year-over-year (yoy) in May, beating Street estimates of 4.70%. Excluding volatile food and energy, core consumer prices were up 3.80%. While both the headline and core readings were high, it was what was under the hood that really counted to investors, who were looking at the sustainability of higher prices. When they did so, they didn’t see much that worried them, in part because of the base effect (i.e. the previous year was artificially low during the pandemic in comparison to current levels), but also because of the nature of the areas making the biggest contributions. Used car and truck prices were up 7.30% month-to-month, accounting for a third of the increase in prices. Airline tickets experienced a similar spike on demand, rising 7.00% as more passengers took to the skies. Subsequently, demand for car and truck rentals surged, with prices rising 12.10%. Year-over-year, car and truck rental prices are up a stunning 110%! Investors found comfort that categories that do a better job of capturing the sustainable trend in inflation, food and energy, were up a more modest 0.40% and 0.00% in May, respectively. As pent-up demand for goods and services normalizes in the coming months, we would expect to see consumer price inflation moderate.
Trade Deficit Narrows on Higher Exports and Lower Imports
Consumer appetite for international goods cooled in April, reducing the U.S. trade deficit by -8.20% to $68.9 billion. That is down from March’s record $75 billion trade deficit. To put this in perspective, March’s deficit was the highest level since January 1992. When placed in that context, the decline in April was not concerning. From a macro standpoint what was encouraging was that the narrowing of the deficit not only included a drop in imports but a rise in exports as well. Imports fell -1.40% to $273.9 billion, driven by a drop in petroleum and consumer goods. Meanwhile, exports rose 1.10% to $205 billion, driven by an increase in capital goods and Boeing aircraft orders. As we mentioned above, thematically, we are seeing a shift in spending from goods to services. We’d expect this shift to lower the deficit in general since the U.S. is a large importer of goods. The spending shift mix may also help moderate inflation since hard goods require more raw materials and they rely more greatly on global supply chains– both of which have been stressed during the pandemic. The reduction in marginal demand should, in turn, reduce inflationary pressures.
There was really nothing new to report this week. Inflation was the key market-moving report, but markets had pretty well anticipated the higher headline number and investors were satisfied by the underlying dynamics they saw take place in the subcomponents. Inflation nervousness has largely faded over the last eight weeks. The Fed’s position that inflation will be transient seems to be playing out and markets appear to agree based on the fact that the 10-year U.S. treasury is now back under 1.50%. Inflation still remains the markets’ biggest risk, but anxiety over inflation has been subsiding since February and a calmness has set in. As such, markets are back to setting new highs on the smallest of gains.
The Week Ahead
The Federal Reserve will hold its FOMC meeting. Also on tap is May’s retail sales numbers which traders will be pouring over for signs of a consumer spending rebound.
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The Games Must Go On
Last summer’s Tokyo Olympics were postponed due to the pandemic. Despite overwhelming public support among the Japanese for another postponement or cancellation, the games will go on starting next month. Tokyo and other parts of Japan are currently under a state of emergency until June 20th as the region grapples with another wave of coronavirus. The host city’s contract with the International Olympic Committee (IOC) states that only the IOC can cancel the games. The IOC believes its precautions will keep participants safe.
In the history of the modern Olympics, there have been only three instances where the games were cancelled: in 1916, 1940, and 1944 — all three cases were due to the two World Wars. The last time Japan hosted a Summer Olympics was in 1964. A scaled-down version of the Games with no foreign spectators is set to start on July 23rd. Some 11,500 athletes are expected to travel to Japan to compete in 33 sports and 339 medal events, including six new sports, four of which will be making their Olympic debut: karate, sport climbing, surfing, and skateboarding. The other two sports, baseball and softball, are returning to the Olympic program after previously being cut.
New Events
Two types of skateboarding will be showcased at the Tokyo Games: park and street. Park competitions take place within a dome-shaped bowl. Street competitions feature a course with stairs and rails. Sport climbing at the Tokyo Olympics will combine all three of the sport’s main disciplines — speed, bouldering, and lead — into one event. Most climbers specialize and compete in one or two disciplines, so this will be a challenging competition for athletes.
The IOC allows host cities to propose new sports that are popular in their country. The Tokyo Games will include two types of karate: kata and kumite. In kata, athletes are judged on form, and in kumite, athletes spar with one another in three weight classes.
There will also be several new events in existing sports, such as 3-on-3 basketball and mixed-gender relays in swimming, track and field, triathlon, and archery.
How to Watch
NBC announced this week that it will show more than 7,000 hours of content from the Tokyo Olympics across its networks and streaming platforms. The games taking place this summer will continue to be officially branded as the 2020 Tokyo Olympics. Olympic qualifying events are already underway this month in some of the most popular sports. Below is NBC’s broadcast schedule for qualifying events in swimming, gymnastics, and track and field:
SWIMMING
June 13
Men’s 400 Individual Medley, Women’s 100 Butterfly, Men’s 400 Freestyle, Women’s 400 Individual Medley, Men’s 100 Breaststroke
Qualifying heats: 5:30 p.m. CDT on NBC (tape delay)
Finals: 7 p.m. CDT on NBC
June 14
Women’s 100 Butterfly, Men’s 200 Freestyle, Women’s 100 Breaststroke, Men’s 100 Breaststroke, Women’s 400 Freestyle, Men’s 100 Backstroke, Women’s 100 Backstroke
Qualifying heats: 5:30 p.m. CDT on NBC (tape delay)
Finals: 7 p.m. CDT on NBC
June 15
Women’s 200 Freestyle, Men’s 200 Freestyle, Women’s 100 Backstroke, Men’s 100 Backstroke, Women’s 100 Breaststroke, Men’s 200 Butterfly, Women’s 200 Individual Medley
Qualifying heats: 5:30 p.m. CDT on NBC (tape delay)
Finals: 7 p.m. CDT on NBC
June 16
Men’s 100 Freestyle, Women’s 200 Freestyle, Men’s 200 Butterfly, Women’s 200 Butterfly, Men’s 200 Breaststroke, Women’s 200 Individual Medley, Women’s 1500 Freestyle
Qualifying heats: 5:30 p.m. CDT on NBC (tape delay)
Finals: 7 p.m. CDT on NBC
June 17
Men’s 800 Freestyle, Men’s 200 Backstroke, Women’s 100 Freestyle, Men’s 200 Backstroke, Women’s 200 Butterfly, Men’s 100 Freestyle, Women’s 200 Breaststroke, Men’s 200 Individual Medley
Qualifying heats: 5:30 p.m. CDT on NBC (tape delay)
Finals: 7 p.m. CDT on NBC
June 18
Women’s 200 Breaststroke, Men’s 200 Backstroke, Women’s 200 Backstroke, Men’s 200 Individual Medley, Women’s 100 Freestyle, Men’s 100 Butterfly
Qualifying heats:5 p.m. CDT on NBC (tape delay)
Finals: 8 p.m. CDT on NBC
June 19
Men’s 100 Butterfly, Women’s 200 Backstroke, Women’s 800 Freestyle, Men’s 50 Freestyle, Women’s 50 Freestyle
Qualifying heats: 5:30 p.m. CDT on NBC (tape delay)
Finals: 8 p.m. CDT on NBC
June 20
Men’s 50 Freestyle, Women’s 50 Freestyle, Men’s 1500 Freestyle
Finals: 7:15 p.m. CDT on NBC
TRACK AND FIELD
June 18
Qualifying, 6 p.m. CDT, NBCSN
Men’s 10,000 / shot put, 9 p.m. CDT, NBC
June 19
Qualifying, 6 p.m. CDT, NBCSN
Women’s 100 / discus, 9 p.m. CDT, NBC
June 20
Men’s and women’s 400 / women’s 100 hurdles / men’s 100, 8 p.m. CDT, NBC
June 21
Qualifying, 6 p.m. CDT, NBCSN
Women’s 1500 / women’s 5,000 / men’s 800, 7 p.m. CDT, NBC
June 24
Women’s 3,000 steeplechase / shot put, 8 p.m. CDT, NBCSN
June 25
Men’s 3,000 steeplechase / discus, 5 p.m. CDT, NBCSN
June 26
Men’s 400 hurdles / men’s 110 hurdles / women’s 10,000 / women’s 200, 8 p.m. CDT, NBC
June 27
Women’s 400 hurdles / women’s 800/ men’s 5,000/ men’s 1,500, men’s 200, 6 p.m. CDT, NBC
GYMNASTICS
June 24
Men’s Day 1, 5:30 p.m. CDT, NBCSN
June 25
Women’s Day 1, 7 p.m. CDT, NBC
June 26
Men’s Day 2, 3 p.m. CDT, NBC
June 27
Women’s Day 2, 7:30 p.m. CDT, NBC
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