Sense and sentimentality

Posted by: Paul Donovan

03 May 2021

Daily update

  • Business sentiment opinion polls are the main focus in a generally quiet calendar. The data has been unrealistically strong in recent months—while the underlying economy is performing very well, manufacturing growth is not quite at the stratospheric levels the surveys imply.
  • We seem to be experiencing something like a reverse of last year’s patterns—when sentiment data predicted falling output at the moment monthly growth rates shot up. Newsflow about the vaccination cycle may be more important in dictating answers to sentiment surveys than actual economic activity.
  • US Treasury Secretary Yellen (who is an economist) was urging Congress to pass tax increases to fund the USD 4.1tr spending proposals, citing the need to keep the deficit under control. Yellen’s remarks also remind investors that the proposals are more redistributive than stimulative, and as such should not be especially inflationary. Federal Reserve Chair Powell (who is not an economist) speaks on the economy today.
  • German retail sales for March were significantly stronger than expected, beating the most optimistic forecast in the consensus range. The previous month’s data was revised up, because German data is nearly always revised up. Consumers have adapted so as to be able to continue to spend money. This may blunt the effect of additional pandemic restrictions.

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