The Day at a Glance | May 5 2021

The Top

*Janet Yellen clears up comments made regarding interest rates.

*EU publishes plan to reduce dependency on China and other countries regarding the supply of raw materials, pharmaceuticals and semiconductors.

*Jobs created in the private sector set below estimates in the US: ADP 742 thousand vs 800 thousand e.

*Poland approves European Recovery Fund in its local legislature; the decision increases optimism regarding the distribution of resources occurring soon.

*Economic indicators: Services ISMs in the US are expected to be published (64.3 e.); Inflation for producers in Europe set at 4.3% annual in March (vs 4.2% e.).

Economic environment

Secretary of the Treasury Janet Yellen cleared up comments made regarding interest rates, which don’t constitute a recommendation or a prediction about monetary policy. Yesterday, Yellen said in an economic forum sponsored by The Atlantic that it`s possible that interest rates could increase to avoid the economy from overheating – even though spending programs carried out by the new administration are relatively small compared to the economy`s size – as there could be some pressures on prices that would force a moderate rise in interest rates to occur. The comments made created volatility among markets yesterday and Yellen has cleared up said comments with The Washington Post saying that her opinion doesn’t imply any recommendation concerning the FED`s monetary policy, nor was it a prediction of what could happen. In recent months, the ultra-accommodative monetary policy set out by the Federal Reserve has helped sustain an extraordinary rally among US stock markets and in large part, among risky-considered assets, while the real economy goes through the pandemic`s negative effects. The eventual normalization of this monetary policy has turned into a risk, especially amidst an environment of inflationary pressures that could accelerate and intensify the process; something that could restrict financial conditions. Yellen`s words also appear in a context characterized by rising prices in the economy and the perception that inflationary risks could force the FED to act ahead of time; there are disruptions in the supply of materials such as semiconductors (chips), steel, wood and cotton – which have increased prices for producers (the Commodities index on Bloomberg is at its highest level in over a decade); some companies have announced that they will transfer these costs to consumers (Nestle, Colgate-Palmolive); manufacturing PMIs showed that the largest rise in output prices since 2009 occurred; and import prices (excluding food and energy) in the world`s largest economies increased 4% in the 1Q21 (their largest rise in 3 years).