⌛️Equity Markets Directionless⏰

It was a market of see-saw on Monday as investors aimed for a direction but none to be found. Equity markets swing from losses to gains as market participants made short term bets on stocks given the volatile environment as latest news roll points to different directions on development of the Ukraine war as well as outlook of inflation, which we will take a deeper dive in this update. 

🧨Are we reaching peak inflation?🗽

The latest CPI data shows a promising sign that inflation is peaking. As with all arguments, analysts are pointing to another isle of view. 

Investors are considering the PPI data as perhaps more crucial than the CPI. After all, the March PPI had risen by 11.2% compared to a year ago, which is worst off than the CPI reading. 

Indeed as one Citi economist pointed out, the PPI was not a reliable predictor of CPI before the pandemic began. Yet, it has become a more accurate indicator with such erratic development over the past year. 

🥔PPI data showed strong inflation🥦

Let’s consider the main staple of food, vegetables, which rose 82% in price in March from a year ago. The same applied to grains that had grown 40%. Meat and fish categories also jumped around 23% compared to March 2021. The list goes on, and so is energy too. 

Nonetheless, the Core CPI, which the Fed focuses on, had stripped out these categories in their consideration. Hence, saying that inflation peaked appeared to be a flawed argument. 

⚖️Ukraine War building high food and energy prices🚘

Indeed, given the importance of fertilisers, oil, and crops derived from the region, the war is expected to push prices further and lead to food comprising an ever-larger component of consumers’ expenditure, which tends to lift inflation expectations. 

Analysts are calling for investors to be mentally prepared for a renewed burst of inflation in the coming months as commodity price hike risk persists. 

📉Profit margin risk💰

So far, companies have held on to their fat profit margin. Nonetheless, Pika World does not see this as a permanent feature, given that corporations do not have infinite pricing power. 

The surge in producer prices should prompt management to convey possible profit margin pressure in the coming quarter as the outlook for the second half of the year. The equity market will face a stricter period ahead if this is true.