Markets shift into neutral gear ahead of heavyweight data
Financial markets look to be shifting into neutral gear ahead of heavyweight data starting with China’s Trade Balance due shortly, UK GDP this morning, US CPI this evening, and the start of earnings season in the US, led by big banking.
“Wall Street went nowhere overnight, the US 10-year Note auction passing without incident, leaving bonds in neutral gear as well. It was much the same for currency markets, although the gold retreated as momentum temporarily waned, and Bitcoin continued to nudge near record highs,” commented Jeffrey Halley, senior market analyst at OANDA, this morning.
In Asia today, China and Japanese equity markets have rallied, having suffered most yesterday. South Korea has also jumped.
“With no news of note, that suggests that fast money flows suffering a bout of nerves yesterday, took the overnight session as no news is good news, and loaded up again this morning in typically herd-like behaviour,” Halley told Morning Wire
Later today
Looking ahead, we have the usual plethora of Federal Reserve speakers this evening, but the most attention will be focused on US Inflation releases.
US Core and Headline Inflation for March YoY are expected to rise by 1.5 per cent and 2.5 per cent, respectively. However, the MoM data is arguably more critical, Halley said, with March encompassing the economy’s initial reopening and some of those stimulus cheques being spent. March Core Inflation MoM is expected to rise by 0.2 per cent, with the headline inflation rising by 0.50 per cent.
“Markets have become complacent about the inflation question, likely because the equity rally resumed with major indices hitting record highs in the US and Europe, justifying it as the street becoming more “comfortable” with rising inflation,” he noted.
“We will see how “comfortable” markets really are if the MoM CPI prints are much higher than expected. I suspect bond yields will jump along with the Dollar in that event, with the Nasdaq and S&P 500 darlings of 2020 getting cyclically rotated for the Dow Jones pensioners,” he added.
Oil treads water
Oil prices rose slightly overnight as Middle East concerns underpinned prices. Brent crude finished just 0.2 per cent higher at $63.10 a barrel, while WTI crept 0.45 per cent higher to $59.65 a barrel.
“Although the closes were neutral, both contracts traded in busy two-dollar ranges, hinting that interest remains high, even if directional momentum does not,” Halley said.
In Asia, oil has moved higher again, with Brent crude climbing 0.65 per cent to $63.55 and WTI rising 0.50 per cent to $59.95 a barrel. China’s import data will have provided some tailwinds, with crude imports increasing healthily.
“Fears of Iranian retaliation for the unspecified attack on its nuclear processing facility is likely to underpin prices this week. US/Iran talks resume in Vienna today, with markets discounting any hope of progress. That could provide a surprise reason to sell oil if, by some miracle, the two sides find common ground,” he observed.
In the bigger picture, Brent crude continues to trade noisily between $60.00 and $65.00 a barrel, and WTI’s between $57.50 and $62.50 a barrel.
“Intraday sentiment and flows continue to dominate proceedings. A breakout of those ranges will signal oil’s next directional move,” Halley concluded.