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LIVE MARKETS-Inflation haunts the data: Empire State, homebuilder sentiment

Mon, 17th May 2021 16:30

* Major U.S. indexes rd; chip stocks weak, retail slightly
green

* Tech weakest major S&P sector; energy leads gainers

* Euro STOXX 600 index ~flat

* Dollar ~flat; gold, crude rise; Bitcoin down ~5%

* U.S. 10-Year Treasury yield ~1.64%
Welcome to the home for real-time coverage of markets brought to
you by Reuters reporters. You can share your thoughts with us at
markets.research@thomsonreuters.com

INFLATION HAUNTS THE DATA: EMPIRE STATE, HOMEBUILDER
SENTIMENT (1130 EDT/1530 GMT)

Data released on Monday confirmed that the ongoing
demand/supply imbalance is sending prices higher and conjuring
the inflation bogeyman.

Manufacturing activity in New York State is expanding this
month at a slower pace than it did in April, according to the NY
Federal Reserve's Empire State index.

The number came in at 24.3, a 2-point downtick from last
month, but not as steep as the 23.9 consensus.

An Empire State reading above zero signifies expansion from
the previous month.

The deceleration was attributable to declines in the
six-month business outlook and employment components, while new
orders crept higher and prices paid - as a result of scarcity of
materials in the face of booming demand - jumped to an all-time
high.

Employers hired more workers, though the pace of gains looks
to be lagging activity and new orders" write Oren Klachkin, lead
U.S. economist at Oxford Economics. "Supply side challenges were
also evident on the inflation front, as the prices paid index
rose to its highest reading on record."

The housing market, which cheekily thrived throughout the
pandemic as buyers fled cities for lower population density and
home office space, has also begun to feel the supply pinch.

While spiking demand has sent housing inventories to record
lows, supporting the need for new home construction, lumber
producers have struggled to keep pace sending construction costs
soaring.

Still, homebuilder sentiment is holding firm in
May at a reading of 83 as expected, according to the National
Association of Homebuilders (NAHB).

"With inventory tight, homebuilders presumably expect to
pass on the cost increases to buyers," says Ian Shepherdson,
chief economist at Pantheon Macroeconomics. "If, however,
mortgage demand doesn’t revive over the summer - not a terrible
bet, assuming that the economic recovery persuades lenders to
relax their credit standards - homebuilders will struggle."

NAHB chairman Chuck Fowke echoed that sentiment, calling for
legislative action.

"Policymakers must take note and find ways to increase
production of domestic building materials, including lumber and
steel, and suspend tariffs on imports of construction
materials," Fowke said.

Investors are in a risk-off mood in late-morning trading.

All three U.S. indexes are red, with the Nasdaq,
weighed down by tech, and especially chips, off
the most.

(Stephen Culp)

*****

PEOPLE SHORTFALL TO FUEL FUTURE INFLATION (1101 EDT/1501
GMT)

While markets worry about inflation as the world recovers
from the COVID-19 pandemic, more price pressures lurk further
out due to a future worker shortage, according to a commentary
on Monday by Christopher Smart, chief global strategist and head
of the Barings Investment Institute.

Smart said a trend of slower population growth could mean
the world will start to run out of new people to fill jobs in
the coming decades.

"Current investor worries about supply shortfalls should
focus instead on the future needs of a planet whose most
precious resource is -- quite literally -- able-bodied people,"
Smart said.

The latest hike in prices, fueled by returning demand, will
trigger fresh supply to cap inflationary pressures and an ample
labor force will adjust to keep wages in check, the commentary
said.

Smart pointed to "persistent price rises" returning in the
future as the supply of workers relative to available work
shrinks.

"Fewer people alone will not necessarily drive up the cost
of hiring them, but fewer working-age people relative to the
overall population may do just that," Smart said.

(Karen Pierog)

*****

MAJOR U.S. INDEXES STUMBLE IN EARLY TRADE (1010 EDT/1410
GMT)

Amid lingering inflation concerns, major U.S. stock
indexes are once again stumbling. This after what may have
simply been a two-day relief rally that saw the S&P 500
retrace about 70% of its recent decline.

With this, tech and tech sub-sectors, such as
semiconductors are leading the market down. Tech is off
more than 1%, while the chip index is sliding more than 2%.

Meanwhile, retailers are set to take the earnings stage
after inflation-sparked market turbulence.

So far, they are one bright spot. The S&P Retailing index
, and the broader SPDR S&P Retail ETF are both
slightly green on the day.

Here is where markets stand in early trade:

(Terence Gabriel)

*****

NASDAQ 100 TRIPLE-Qs: MAYBE BEST TO GO WITH THE FLOW (0900
EDT/1300 GMT)

The Invesco QQQ Trust Series 1, which tracks the
Nasdaq 100, hit its record highs late last month. It has
since trickled down a bit, having lost about 3.5% from its end
of April close.

Meanwhile, although heading toward the summer months, QQQ
volume has been robust this May, with 536 million shares of
turnover so far this month. At the current pace, the triple-Q
volume is on pace to be more than a billion shares this May,
which would be the second highest reading for any month so far
this year.

That said, one measure that incorporates both price and
volume, the Money Flow index (MFI), may be casting some doubt
over the underlying thrust behind the QQQ's recent record highs:

Although, the ETF is less than 4% from its April close, the
MFI has hit a 14-month low. Of note, since 2007, QQQ declines of
varying degree have been preceded by protracted monthly MFI
divergence.

Just in terms of more recent history, despite new QQQ highs
in late 2018 and early 2020, MFI failed to confirm strength, and
in both instances, the ETF ultimately suffered a major sell off.

Potentially adding to the importance of its current level,
the MFI is flirting with a 12-year support line, which has
contained its weakness since late 2018.

Therefore, it may now be make-or-break for the MFI. With a
sharp upturn, the QQQ may get swept up in a strong current,
leading to another multi-month run. However, a support line
break may leave the Triple Qs vulnerable to a much deeper
decline, which could soon become a waterfall.

(Terence Gabriel)

*****

FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
- CLICK HERE:

(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)

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