US market bring pessimistic tone after PPI rise

Another rise in PPI highlights the ongoing risk of inflation-fuelled monetary tightening. The rise in commodity prices has helped lift miners today, with airlines on the back foot.

• US markets head lower once again
• PPI inflation highlights damage caused by rising input prices
• Airlines dip while miners gain ground

US indices are providing a more pessimistic tone to proceedings today, with the optimism seen throughout much of the European session folding at the US open. A conversation between Xi Jinping and Joe Biden formed the basis of a strong risk-on mood overnight. However, we are seeing a fourth consecutive day where European-led gains are eroded in the wake of a swift decline on the US open. Today has provided a fresh reminder of the ongoing battle against elevated prices for producers, with the PPI reading of 8.3% marking the highest level since 2010. As we approach a week that looks set to be dominated by US and UK CPI readings, the fact that we are seeing two manufacturing powerhouses in China and the US post such huge PPI inflation figures does highlight how inflation remain a key concern. Input prices remain the key hurdle for businesses to overcome, and while the Chinese had warned that they would release commodities from their strategic reserves, markets are paying little attention to that possibility for now. The release of Chinese crude reserves have failed to hinder energy prices, with traders instead opting to focus on the slump in US supply thanks to Hurricane Ida. Demand is expected to gradually improve as the world’s vaccination rates improve, and there is little reason to believe that OPEC will be in a rush to drive down prices despite their bid to steadily gain market share. 

Airlines continue to be in focus this week, with the sector hit hard once again today. Yesterday’s easyJet fund raise does have investors on the back foot over the possibility that we will see competitors follow suit. Rising Delta cases in the US highlight the high likeliness that transatlantic tourism looks set to be on the backburner for some time yet. Elsewhere, mining stocks have provided one area of optimism in UK markets, with rising PPI highlighting the ongoing push higher for commodities. A squeeze in labour and shipping provides expectations that we will continue to see demand outstrip supply for many key commodities. Natural gas has been one key commodity on the rise of late, with many concerned that we will see further upside once summer passes and demand picks up steam.