Inflation to spike

But by how much?

Chart of the Day

The US ISM services April index was released yesterday and the prices paid index rose again, much like the prices paid index of the manufacturing gauge earlier this week. An average of the two is close to the highest in the history of the surveys and suggests inflation could rise sharply to 5%, which would be much higher than most economists are predicting for this year.

Macro

Although the price indexes rose, a weighted average of the ISM activity surveys fell to 62.3 in April. Here's the long-run relationship between the surveys and GDP growth:

Ahead of the US non-farm payrolls report on Friday, the ADP employment report showed a below-consensus increase of 742,000. The ADP has understated the recovery so far though.

A weighted average of the ISM employment indices gives a more positive message.

Brazil's central bank hiked its policy rate by 75 bp yesterday.

Markets

That helped lift the real today, though its post-2020 performance is still little better than that of the Turkish lira.

The weekly EIA report showed crude inventories fell by 8.0 mn barrels last week and are now just 2.3% higher than their average at this time of year over 2017-19.

That’s because production has remained so low.

There was another unusual day of lower real yields (inverted on this chart) and lower tech stocks yesterday.

Despite lower real yields in practice, the mere talk of higher rates (from Yellen earlier this week) has sent the financial sector up relative to the overall market.

Like what you see? Please forward this email to your friends and colleagues, or use the button below to share it on social media. They can also follow us https://twitter.com/macro_daily