EN Down
Hi, user_no_name
Live Chat

Rotation and reflation remain the order of the day: The Dow Jones industrial average rose almost 100pts to a record close, whilst the S&P 500 edged up 0.1% and the Nasdaq fell another 0.4% as the big tech stocks had another choppy day. Energy and basic materials did well, while so-called bond proxies like utilities and real estate fell. US 10-year rates remain under 1.6%. Tech, growth and momentum continued to face pressure. Cathie Wood’s ARK Innovation ETF fell another 1% and trades about 30% off its highs struck earlier this year, down 10% YTD.

European stock markets bounced back strongly yesterday – the FTSE 100 rose 1.7% to settle one point below its post-pandemic intra-day peak at 7040, having broken this earlier in the day. The DAX added more than 2% to almost reverse all of Tuesday’s losses.

Markets are on the front foot again in early European trade this morning, with the FTSE 100 breaking out to a new post-pandemic peak at 7069. As consistently argued, UK equities trade at a discount to peers and should be well exposed to the strong cyclical recovery in the global economy as well as fiscal stimulus from the US. Meanwhile the DAX also firmed up by another 1% in early trade to 15,286 before paring gains somewhat. Bulls will want to finish today above Monday’s close at 15,236 in order to erase the big Tuesday reversal. Adding to the positive mood in Europe, shares in UniCredit and SocGen rallied over 4% as the Italian and French banks reported solid earnings. AB InBev rose almost 4% after reporting strong earnings. Ever-cautious Next raised its profit guidance for the year by £20m.

Following Yellen’s comments about raising rates to prevent overheating, a cornucopia of Fed speakers (Clarida, Mester, Williams, Evans, Rosengren and Kashkari) have swung behind the Fed’s policy stance to keep risk assets well supported. All have reiterated the Fed’s commitment to the cause (employment), helping to buoy risk after the Tuesday wobble. NY Fed president John Williams took the cue from Janet Yellen’s off-kilter remarks about raising rates to repeat the dovish mantra. Inflation will rise but will be temporary, he said, adding that he wouldn’t draw a line on where inflation would need to reach to prompt policy change. Chicago Fed president Charles Evans reiterated that policy would remain highly accommodative for some time, stressing that conditions for the ‘substantial further progress’ required by the Fed will not be met for a while. Cleveland Fed boss Loretta Mester said policymakers will be ‘deliberately patient’ regarding inflation. Boston Fed president Eric Rosengren said it’s too early to talk about tapering the Fed’s $120bn-a-month asset purchase programme. All on script and helping to lift the boats following Yellen’s mis-speak.

Shares in some drug makers fell after the US said it would support a patent waiver for Covid vaccines. Moderna fell 6%, Novavax was down 5%, whilst Biontech and Curevac are 12% lower today. Chinese drugmaker Cansino Biologics fell 15%.

Peloton stock tumbled 15% after the company recalled its treadmills following the death of a child in an incident involving one of the machines. Bank of America downgraded the stock, citing risks about bad publicity and a delay to future product launches. Baird and Stifel said this is a buying opportunity.

A £2.75bn auction of 10-year gilts sold at an average 0.924%, whilst the yield on the paper currently trades around 0.82% ahead of the Bank of England’s monetary policy decision today. It’s almost certain that the BoE will upgrade its economic and inflation forecasts in the quarterly Monetary Policy Report. More important will be the outlook across the full horizon of the bank’s forecast period – is the recovery sustained or are we dealing lower long-term potential growth and scarring? The Bank forecast a 4% decline in Q1 (quarter-on-quarter), however the data so far indicates that the contraction was milder than the February projection. There is no question about raising or lowering interest rates – the big question hanging over this meeting is whether the MPC chooses now to signal how and when it will begin to taper asset purchases. There has to be some tapering this year, the only question is really how much the bank is prepared to sound hawkish and do this early.

The economic recovery taking shape in the UK is surely encouraging and warrants the Bank slowly exiting emergency mode. However, with furlough set to run until September, there is not any immediate pressure for the MPC to take the lead in saying ‘we’re out of this’. Markets are currently pricing a small hike this year, and 50 basis points over the three years of the BoE’s forecast horizon. If it sounds too optimistic it raises the risks markets thinking more tightening is required.

GBPUSD trades a little higher this morning at 1.390 with bulls eyeing a push back to Monday’s highs at 1.3930 on any hints of BoE hawkishness. Meanwhile watch for today’s Scottish election results coming overnight and tomorrow – a majority for the SNP, or even a coalition of pro-independence parties – could energise calls for a second referendum. Whilst the current Tory government has made clear it will sanction one, grumblings north of the border create headwinds for sterling. A big win for the SNP could knock the pound back.

Ahead of tomorrow’s nonfarm payrolls report, ADP reported that US companies created 742,000 new jobs last month. This was the biggest jump since last September but was a little short of expectations. It could be a problem not of demand but of supply – companies seem to be finding it hard to find workers. This poses problems for growth (you cannot grow without the staff) and inflation (you have to pay more to attract workers). A culture of dependency like never before seen in the US is being bred by the Biden administration. Initial jobless claims data is released today, forecast at +540k.

Oil recovered after a bit of slip on yesterday’s inventory data. Whilst the EIA reported a large draw of nearly 8m barrels, gasoline stocks rose for a fifth straight week. After rising as high as $66.67 yesterday, WTI for June declined to just under $65 at one stage following the inventory report but has since reclaimed $65.80. Recovery to yesterday’s peak, corresponding with the Mar 15th swing high could, bring on an attack on the Mar 5/8 post-pandemic highs near $68.

Gold trades higher as US yields are a touch softer with bulls eyeing up another attempt to take out the 100-day and round number resistance at $1,800.

A chart showing gold performance on 6th May 2021.

Latest news

Japanese yen falls to 155 vs dollar, weakest since 1990

Wednesday, 24 April 2024


Japanese yen hits 155 per dollar, weakest level since 1990

Tesla stock jumped in after-hours trading despite a 48% drop in Q1 profits

Wednesday, 24 April 2024


Tesla stock pops after hours despite 48% drop in Q1 profits

Australia interest rate cut hopes for 2024 end as Q1 inflation hotter-than-expected

Tuesday, 23 April 2024


Q1 inflation ends Australia interest rate cut hopes for 2024

Tesla shares jump after earnings call provides “clarity” on Model 2

Tuesday, 23 April 2024


Stocks rally, Tesla shares jump on mass market “clarity”

Live Chat