Investors moved further back into equities, betting once again that sovereign debt, nuclear troubles in Japan and higher commodity prices won’t turn out to be sufficient headwinds to blow corporates off course.
In Britain, the impact of austerity policies (including higher VAT) and commodity price pressures are strong, so upbeat UK corporate reporting often seems at odds with a gloomier macro picture (though first quarter growth in the UK was slightly higher than in the US).
TOUGH CONSUMER MARKET
UK companies that operate globally such as ARM, the tech giant, and Aggreko, the equipment hire firm, have of course been strong. But those that are primarily exposed to the UK consumer continue to paint a micro picture more in line with a less certain macro backdrop.
Take AB Foods: it told us once again that its clothing retail arm Primark is facing a tough consumer environment. Premier Foods said raw material inflation is now running at low teens in percentage terms so management is trying to raise prices at the other end of the chain.
The sentiment was echoed by food giant Unilever: it said that volatile input costs would lead to further upward pressure on prices.
RETAIL COST INFLATION STILL LOOMS
So despite the recent slight drop in UK inflation, are we really over the worst? A recent survey of the general population by Citi and YouGov suggests that we are certainly not prepared for another spike upwards.
Our inflation expectations dropped to their lowest level in seven months, the survey revealed. The Bank of England has been arguing for some time that there is lots of spare capacity left in the economy – and that in the medium term this would bear down on wages, thus helping to keep inflation in check. But regardless of any of that, it is clear from the actions of retailers and food companies that there is still plenty of cost push inflation to come, and that they will be passing on their own inflated costs to their consumers.
ROYALS TO THE RESCUE
But maybe I should not be so gloomy after a Royal Wedding weekend. Perhaps an influx of tourists from all over the world and some Union Jack bunting are just what we need to get us spending again? A festive royal tea towel or two apiece could inject some vim into the economy.
I, on the other hand, am off to get my hands on a commemorative Kate and Wills gold coin.
If that doesn’t cheer me up enough to go shopping, it will at least be a nice little inflation hedge.
Anna Edwards co-anchors Capital Connection and Squawk Box Europe weekdays on CNBC.