SportssuperSundayandreturnofoptimism

It was a super Sunday in sports where Novak Djokovic claimed the GOAT throne in Wimbledon beating an Italian challenge. Though the Italians had much to cheer later when in soccer their team triumphed the hosts England in a thrilling penalty shootout in the finals of Euro 2020. The Copa America finals also saw Argentina and Brazil clashing against each other. The combined effect of all this sporting extravaganza on economy can be gained from chock a bloc bars and eateries where fans gathered and ordered infinite drinks and starters. The constant gripe regarding the demise of leisure and hospitality sector post covid can be put to rest now, it saw its phoenix moment yesterday. The consumer is back and with vengeance, he/she is ordering now and willing to step out.

In economics what we described above is known as anecdotal evidence, something which you see, hear and feel. The anecdotal evidence has been used by the policy makers in the past also when the relevant data is in short supply and they have to move fast. But again, the word of caution here, too much reliance on anecdotes is a double edge sword. Any anecdote has to supplemented with broad based empirical proof. Anecdotes or stories provide the narrative framework on which you can form your hypothesis, but it still needs to be tested. For example, now the hypothesis can be that people are feeling confident to move around, this should reflect in job hiring going up in the hospitality sector. This can be then tested against the segment wise employment data. For US, BLS (Bureau of Labor Statistics) provide the same during NFP release.

In the market round up the new week starts on the optimistic note where the Asian equity markets are bubbling. Hang Seng is up 0.5% whereas the Japanese Nikkei is up by 2.25%. Dollar index is trading around 92.10 levels where the US 10-year yields are making some comeback trading 1.35 against the Thursday low of 1.25. Dow Jones ended Friday with a 450-point jump. This week the major release will be the US CPI data (Tuesday) and retail sales on Friday.  There will be congressional testimony of Fed Chief Jerome Powell on Wednesday and Thursday. Coming on the back of the CPI reading which is expected to be around 5% YOY level, we can expect to hear lot of words like “transient” and “temporary” during his responses to the congress. Across the world, monetary policy decisions are due in NZ, Canada, Turkey, South Korea, and Japan. It will be interesting to watch out for any hawkish clues there.

In India also we will see the CPI data getting released today after market hours. The expectation for the June number is around the 6.6% YOY number which is again beyond the RBI’s tolerance band of 2% plus minus around 4%. With higher oil prices and recent mellowing down of monsoon rains, economists will dissect data for core and non-core divisions. The statement by the Governor last week that the bank is not looking to make any hasty retreat from accommodative stance though would provide a cap to any yield spike.

Finally, we started the day with euphoria lets temper it with little caution. The delta variant is still around, and the vaccination process is still incomplete. Putting too much faith in the hope basket can be risky. In the book Money for Nothing author Thomas Levenson describes the effect of plague in London in the year 1665 where the city experienced multiple waves of the disease every time when it was believed that it has been wiped off. The same year was described as annus mirabilis for Isaac Newton as he discovered gravity sitting in isolation (positive externality). Learning is that don’t declare the victory too soon even if you have scored the first goal or won the first set.