As noted by TeleTrade analyst José Maria Castro Monteiro (https://www.teletrade.eu/en), the inflationary agenda has been increasingly brought into focus, taking into account the upcoming releases of price statistics in the USA. Only a month ago, the North American consumer price index (CPI) presented its record value since March 2020 of 1.7% in relation to the previous year.
The highest levels of consumer inflation for more than one consecutive month were indicated for the previous season during the period April-August 2018. At that time, it led to the process of raising Federal Reserve (Fed) interest rates step by step in order to break the "fever". But the Fed is now more than a reluctant player. Their representatives, including President Jerome Powell, have more than once confessed that they are unwilling to do anything with almost zero interest rates for banks, in order to allow the economy to recover all of the jobs that corresponded to the pre season -corona.
In practice, the Fed tends to set the tone for global monetary policy to set the "right" time for any next big moves also for the European Central Bank (ECB) and other regulatory institutions around the world. And when the Fed decided to change the approach that moves its targets to allow inflation to exceed the 2.0% orientation previously outlined for an indefinite period of time, it may have meant the same consequences for the world economy as well.
So far, inflationary processes in Europe continue to be more subdued than in the US, as the ECB did not produce as much excessive money supply during the pandemic compared to the Fed. But the inflationary spiral will probably not be long in coming. borders of the European Union, as soon as the damage to the income of the population and companies has diminished. Blockages will end soon, most restrictions are likely to be lifted within three or five months, letting the inflation whiz out of the bottle.
The additional costs incurred by manufacturers to maintain the necessary viral safety measures, as well as increased wages for delivery and warehouse workers, have already imposed their "tax" on the primary cost, or self-cost, of the production carrier and of sales. In the United States, where vaccination is being launched at the fastest rate possible, the total number of injections will be sufficient for the entire American population by mid-summer. New congressional incentives have also recently provided $ 1,400 in direct aid to almost all residents of the country. As a result, American manufacturers are already acting ahead of the curve, boldly increasing their wholesale prices.
As a result, the North American producer price index (PPI) on Friday came out at 4.2%, the highest value since October 2011.
The TeleTrade analyst believes that, it may happen right after the PPI has reached a sufficiently high intermediate limit of 2.8%, which was reached in March. Because the Fed and other central banks now prefer humility rather than fighting the winds of inflation, the main financial consequences cited are just explosions in government bond yields, which are gaining momentum not only in the US, but globally. Today's inflation data from China has just confirmed the start of a widespread price increase. Chinese producer price inflation, measured in annual terms, increased by 4.4%, the fastest increase since July 2018 and well beyond expectations.
Looking to escape future inflation, which has not yet arrived, investors are already demanding a higher premium for their investments in conservative bonds. This can be a major problem for the service or size of national debts, but at the same time good news for the banking sector, whose shares have been gaining for several months thanks to the higher fixed income source.
But another set of beneficiaries, who can receive more benefits the faster inflation reaches the economy, is often overlooked. And that applies to all types of electronic payment systems, from the largest such as Visa and MasterCard, or PayPal, in addition to other small ones like digital wallets, digital currencies and other imitations of money.
The more substantial the money is spent, the greater the turnover and payment systems commission is likely to be. Let's see the current situation. The price of MasterCard's shares on Wall Street had already gained 29.6% compared to the values valid for the end of 2019, since it rose from almost 300 to 389.5 dollars per share until mid-March 2021. Anticipating reports of additional earnings on its next May 4 earnings date, most of the market even bought MasterCard shares again after a not-so-big dip to $ 350, and now costs more than $ 375 again.
TeleTrade believes that, for Visa shares, its prices have dropped sharply, losing a large part of the initial highs just a few weeks ago, immediately after the US Department of Justice allegedly probed this card giant's system for debit transactions with the alleged anti-competitive practice. As for Visa's shares, its prices dropped sharply, losing a large part of the initial highs a few weeks ago, immediately after the U.S. Department of Justice allegedly probed this giant card system for debit transactions with the alleged anti-competitive practice. . But the market was only encouraged by the lower price range of $ 205 to $ 210 per share that was easily accessible for just over a week.
The next step was that Visa's shares fell immediately. So far, the price has already gone up to the $ 220 area, which still looks attractive compared to the March peak at $ 228.2. But so far, quotes are only 16% more expensive than before the pandemic, which opens up excellent prospects for further increasing Visa's cost. Many investment funds and banking groups, including Goldman Sachs and JP Morgan Chase, expect levels in excess of $ 245 per share within a few months or at least before the end of the year, while very few really believe that the antitrust investigation is serious. . The visa earnings report is expected on May 6, but the market is already impatient and distressed.
Of course, popular digital currencies like Bitcoin or Ethereum are also experiencing extremely dizzying heights, but it is much more difficult to predict how high saturation may come in this dynamic, but fleeting, cryptocurrency market. Approximate estimates of expected financial gains and, therefore, the long-known and well-known global payment system stock price jumps can serve as a kind of relative monetary security ring to escape the crazy future of demonized inflation.
* José Maria Castro Monteiro / Market Analyst & Business Developer