With everyone worried about inflation we are seeing markets pause ahead of this week’s CPI reading. At this stage, analysts are expecting a slight increase in YOY CPI from 1.3% to 1.5%. CPI will come out before the US market opens tonight.
Markets were flat overall last night, whilst the Asian / Pacific region yesterday was a bit more volatile with Chinese and Japanese markets closing around 1% lower.
Things are becoming a little more complicated out there. Before it was a balance of Stimulus, Covid, and Vaccine rollouts. Now there is a bit more going on out there that could affect the mood around markets. We need to keep an eye on Biden’s tax agenda, it could see pockets of the US market correct downward. The other factor in the balance is inflation and when interest rates will start to increase again.
The mood towards this will likely change as time goes on, for now, we are seeing a move from Growth into Value. Overall inflation is being perceived as a negative, as it will cause rates to go up. But it will likely only lead to a large crash if central banks lift rates too much too quickly. One way or another, for now, we will likely continue to see some volatility around inflation data and FED announcements.
All in all, markets have everything they could want- Fiscal Stimulus from the US, extremely accommodative central banks, and the reinsurance that rates will stay low for a long time. It is a fine balancing act, between Vaccines and Covid Cases, as well as stimulus vs the fears of inflation. In the past, markets have risen very sharply in times of inflation, and with all the Bond buying going on we will likely see this again.
The XJO is expected to edge higher on open this morning, following flat leads from U.S markets overnight. We priced in the bearish expected move yesterday, which didn’t end up eventuating. Our market is sensitive at the moment – we just went for a strong run, made fresh pandemic highs, and now we are consolidating. If U.S futures can remain positive through our session, expect our market to be up. Otherwise, we may see a repeat of yesterday.
Its comforting to see the market use the previous post-pandemic high near 6950 as a support. If this level does fail, then 6850 could be expected to hold as this is also roughly where the uptrend line will come in.
US shares closed pretty flat overnight, with little movement for the flagship S&P500 index. It appears that US investors are happy to tread water ahead of the company earnings season that kicks off this week. There was definitely a lack of big news for the market to react to overnight, other than perhaps the news that NVIDIA would start producing chips for use in server computers, which caused INTEL to fall in price.
Oil & Gas was the weakest sector overnight, while Technology stocks also fell to a degree; most other sectors closed fairly flat. US company earnings season kicks off tonight, but the most important reports won’t really start until Wednesday night , with several of the largest banks reporting then.
- Nasdaq pulls back, with selling in Tech, Discretionary, and Communication Services - May 5, 2021
- Markets continue to consolidate at top of the range - May 4, 2021
- US markets break higher again but with low momentum - April 30, 2021