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Shares in Frankfurt rose to a record high in early trade as European stock markets started Tuesday in upbeat fashion after an indecisive session on Monday left the major indices only slightly lower. The DAX rallied almost 1% to 15,540 at the high just after the open. The FTSE 100 is also firmer near 7,100 after last week’s big rejection of the 6800 handle left a path clear to retest the post-pandemic highs. Yesterday saw Wall Street down but only a little and the major indices were well off the lows. Meme stocks had a good day as AMC rallied 7%, whilst GameStop finished up by almost 13% on the day. Airbnb and Doordash were among the big fallers, decaling over 6% and 5% respectively. The S&P 500 closed down 0.25% at 4,163, whilst the Nasdaq was a tad weaker and the Russell 2000 rose marginally. UBS has increased its ear-end S&P 500 forecast to 4,400 citing exceptionally strong earnings growth this year that will more than compensate for valuation headwinds.  


Vodafone charged to the bottom of the FSTE 100, declining more than 6% and knocking 9pts off the index, as it said capital expenditure would rise. Full year results show group revenue declined 2.6% to €43.8bn, a little better than consensus, whilst adjusted ebitda fell 1.2% to €14.4bn. Covid’s impact on roaming was a big factor in lower revenues, but a €500m reduction in European operating costs helped offset in terms of earnings. But the higher capex guidance, as Vodafone invests in new tech and services like 5G, is why investors are taking some skin out of the game today. 


In the wake of last week’s inflation scare, Fed officials have duly been wheeled out to shore up risk sentiment. Arch hawk Kaplan of the Dallas Fed (non-voting this year) reiterated his belief that rates could rise next year, but we know he’s an outlier with no say this year. Vice-chair Clarida stressed patience as the economy reopens. Minutes from the last FOMC meeting due on Wednesday will be parsed for any kind of dissent beyond Kaplan. At his press conference for the April meeting, chair Powell was adamant that it’s way too early to discuss tapering: “We’ve said we would talk well in advance and it is not yet time to do so.” Minutes will show the Fed is still on course – the question is what the data does to the market over the coming weeks and months and whether it really believes the Fed won’t blink.


Sterling trades at its best level against the US dollar since late February, with the cable pair mounting a push back to 1.42 in early trade this morning after a solid employment report from the UK. The 3-month calls for a look again at the post-pandemic peak at 1.4250 struck on Feb 24th, but rejection of this area again may signal a double top and slow grind back to the 1.38 region. The British labour market looks in decent shape for now; the true test comes with the end of the furlough scheme. The unemployment rate declined to 4.8% in the January-March quarter from 5.1% in the preceding three-month period. The employment rate also rose but remains below its pre-pandemic level. Payrolled employees increased in April for a 5th straight month but was down 772k since February 2020. 


The dollar remains on the back foot more generally. DXY has flipped under 90 and is now at its weakest since dollar since the Feb 25th drop, whilst EURUSD has hit 1.22 again.  US 10-year yields are a tad firmer at 1.65%, pushing real rates lower with the 10yr TIPS to –0.90%. The combination of weaker USD and lower real rates helped gold continue to advance beyond $1,870 where it is looking at the 50% retracement of the move down since August, as flagged in yesterday’s note. 


WTI crude oil futures jumped to $67, breaking clear of the recent range to look again at testing their strongest since before the pandemic, struck on March 8th at $68. Brent hit $70 for the first time since March 5th. This has to be a risk-on move off the back of signs that Europe and the US are moving forward with reopening despite concerns about variants. News that vaccines seem to be effective against the current variants has traders optimistic that reopening plans will largely go ahead as planned. Breakout of the horizontal resistance could see return to $75 WTI. The opening up of travel is encouraging, whilst US airports are seeing more passengers passing through terminals than at any stage since before the pandemic. Whilst worries exist about the situation in India, this is largely a known quantity and the ‘trade’ is to look for a rebound in demand this year. By the mid-summer this may be over as demand might not pick up as expected.

Chart showing performance of various indices and commodities.

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