Churn continues: Tuesday’s rally on Wall Street stalled as investors showed little appetite to drive the market higher. The S&P 500 reversed early gains to end the day marginally lower as it continues to chop around the 4,200 area, whilst the Dow Jones dropped 80pts, erasing an earlier gain of more than 100pts at the session high. The Nasdaq was flat. European stock markets opened on Wednesday mildly higher after Asian shares were broadly higher as inflation expectations cool. Light data docket today – EIA inventories seen at -1m, with the Fed’s Quarles set to speak later.

Fed speakers stuck to the script, saying they’ll look through transitory inflation spikes, but vice chair Richard Clarida underscored a change in the tune we have seen since the April meeting minutes were released by saying that the central bank could start tapering in the coming months. “We are talking about talking about tapering,” he told CNBC, a pointed reference to chair Jay Powell’s comments last year when he said the Fed was “not even thinking about thinking about raising rates”. So, we have the Fed carefully guiding markets – ‘don’t worry about inflation but at the same time we are going to be exiting full emergency mode’. This offers a bit of a muddy picture for the market that’s reflected in the price action showing no real conviction. Whilst the real thrusting energy of a few weeks ago has gone, sellers are not yet taking over. US 10s trade at 1.57% after closing at 1.564% on Tuesday. 

Dollar weakness persists though the dollar index has eased a touch off the year low hit yesterday at 889.53. NZDUSD rose to a three-month high as the RBNZ left monetary policy unchanged but signalled increased hawkishness. The central bank projects a rate hike in the second half of next year, though it also stuck to the line that inflation would prove temporary. The unexpected hawkishness saw the kiwi pop above $0.73, its highest since Feb 26^th. EURUSD is a tad lighter with the old resistance at 1.22450 now acting support. Cable also trades a bit lower as it retreats from the 1.42 area. 

With yields kept in check and the dollar near the lows, it’s a strong environment for gold. (Also, we could look to a potential unwind out of ‘digital gold’ in the real thing). Spot gold is firmer again, hitting its highest since early January. An 8bps drop in 10yr TIPS in the last four days, combined with persistent dollar weakness, has fuelled a move beyond $1,900. Next steps are the 61.8% retracement at $1,925 and then then the big double top around $1,965. Bitcoin is holding around the $40k area but the price volatility has really taken the shine of this asset as an inflation hedge. 

Oil trades firm, with WTI (Jul) holding at yesterday’s week high above $66 after the API reported a 440k draw in crude oil inventories, with gasoline -2m and distillates -5.1m also painting a bullish picture. EIA numbers today are expected to show a draw of 1m barrels.

M&S swung to a £201m loss last year as the pandemic hit its Clothing & Home business, where revenues were down 31.5%. Online growth of 54% couldn’t quite offset a 56% drop in store sales. LFLs in food were up a measly 1.3%, but the Ocado business was a net contributor to profits of £78.4m. Nevertheless, shares rose to the top of the Stoxx 600 in early trade as revenues were a slight beat at £8.97bn vs the £8.85bn expected, whilst the balance sheet is also in better shape as net debt declined 10% to $3.5bn. The Ocado deal was pricey but a vital lifeline for the business as it battles a terminal decline on the high street, accelerated and magnified beyond anyone’s expectations by the pandemic. Shares rose over 4% to 162p.