Exploding consumer demand has helped usher in material and labor shortages that are not only driving up costs and fanning inflation worries, they are also reducing manufacturing output.

Fundamental analysis

That means fewer pieces, parts, and finished goods sold all the way through entire supply chains. Companies may be able to offset higher costs and lost sales through price hikes on some things, but bigger-ticket items like cars, appliances, and even houses will be more difficult to make up for in growth. Lost sales for the service industry really can’t be made up, so businesses like restaurants or hotels that are understaffed may not be able to fully capitalize on the reopening boom.

The reopening is also bringing a shift in how consumers spend their money. Walmart, for instance, reported e-commerce sales growth of +37% for the first quarter, which was down from a +69% gain in the fourth quarter. Analysts are taking this and other reports of slower online sales as confirmation that the blistering growth witnessed during pandemic lockdowns is not sustainable.

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Investors have largely expected online shopping growth would moderate this year but are still trying to figure out what the “new normal” might be. Before the Covid-19 crisis, e-commerce sales were growing at about a +15% annual rate. Additionally, investors are unsure whether lower online sales will be offset by in-store sales growth. There is some expectation that more consumer spending will migrate to the services sector as travel, dining, and live entertainment all become options again.

Hence, the still ongoing rotation out of some of the pandemic darlings and into sectors and companies that might have more growth potential as the economy reopens.

FOMC “minutes”

The economic highlight will be the “minutes” from the Federal Reserve’s April FOMC meeting. The bank last month left its extremely accommodative monetary policy unchanged, saying the U.S. economy still needed to make “substantial further progress” toward its goals.

Keep in mind, one of those goals is “full employment” which the Fed has never really provided a hard number for. However, after March’s jobs report showed a surprisingly strong +916,000 gain, Fed Chair Jerome Powell did say he wanted to see a “string of months” showing the same strength. As we know, the April employment report only showed a gain of +266,000 new jobs.

At the same time, there are growing concerns that the Fed is “behind the curve” in regard to inflation with higher prices now popping up all over the place. Analysts will be looking for hints in the minutes that Fed members may be shifting their stance a bit or perhaps getting more nervous about inflation.

I should also note, there will likely be an unusually high level of scrutiny given to the Philadelphia Fed Manufacturing Index today.

Technical analysis

eur 19 may 2021

The EUR futures tested 1.2240 resistance which has been bulls’ swing target for some time. There is no surprise we see a pullback. It is advised to reduce exposure ahead of the FOMC meeting. The new direction will be clear once the market digests the FOMC statement. In general, failure to break the resistance mentioned above can bring the price down to ma50 and ma100 on the 4h chart. And if it finds support there, we can expect a new higher high near 1.23100

EUR is pulling back ahead of FOMC – what’s next? by Inna Rosputnia

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