Pricing power (or lack thereof)

Posted by: Paul Donovan

19 Feb 2020
  • US producer price inflation is due. This signals corporate pricing power far better than consumer price inflation (companies tend to sell to other companies, not to consumers). The numbers should continue to show that the effect of US President Trump's trade taxes have mainly been felt in squeezed profit margins for US companies.
  • The minutes of the US Federal Reserve are due. This meeting was held when US concerns about the coronavirus were at their peak. The Fed is unlikely to overreact, however, and policy signals should stay "on hold". There are several Fed speakers due. Fed Chair Powell is not a natural leader of economic debate, so listening to those that do have economic qualifications is important.
  • There is a UK inflation data dump. The retail price measure matters to the index-linked bond market, but is otherwise largely discredited. The consumer and producer price measures are expected to show a modest increase, but not anything that concerns the Bank of England.
  • Asian equity markets rallied on speculation that China will offer support to its airline industry. Market attention seems to have shifted to consider the likely scale of any Chinese economic stimulus, and what that might mean beyond the first quarter.

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