It’s been a slow start to the week for European stocks with little in the way of volume or direction, and it looks set to be a similar pattern today. The same can’t really be said for US stocks which continue to make new record highs, with the Nasdaq and the S&P 500 pushing ever higher.
The same can’t really be said for the Dow or the Russell 2000 which both closed slightly lower on the day. The performance of the Russell 2000 was particularly concerning if you take the view that the US economy is about to spring out of the traps and put on a growth spurt. It is exactly these types of smaller company that would be expected to benefit the most from a US economic rebound.
Some of yesterday’s Dow weakness was down to Johnson & Johnson shares coming under pressure after their one-shot jab was suspended by US regulators, due to concerns about blood clots. If all this sounds rather familiar it is, given that the jab is very similar to the AstraZeneca one as it is a modified adenovirus, in the same way the Astra/Oxford jab is. US regulators want more time to study the data before continuing the rollout of the jab.
European regulators had already been exploring blood clot links a few days ago so the US suspension is not good news, while it was being reported that Pfizer was upping the price for its Covid19 vaccine to € 19.50 a jab over the next few years.
All of this is happening against a backdrop of another sharp fall in US 10-year yields, despite a March CPI number that was slightly higher than expected. This would appear to suggest that for all the recent concerns about rising inflationary pressure, the general consensus would appear to be that for now it is being considered transitory.
In reality it is simply too early to know given that on an annualised basis this month’s numbers were always going to be much higher when compared to a year ago. This is because this time last year the US economy was put into lockdown, along with the UK and Europe which introduced a deflationary shockwave, as demand plunged as did prices.
It will take a few more months of 2.6% CPI reads before markets become too concerned, however there are still plenty of warning signs, with supply chain disruptions putting upward pressure on prices, while recent prices paid data has also seen sharp moves to the upside. If these start to become sustained then we could well see further upward pressure on yields. For now, yields seem contained, hence the lack of dip in equity markets.
The continued insistence on the part of US policymakers that they intend to ignore any short-term spikes in prices is also helping, with Fed chair Jay Powell expected to reiterate that stance once again later today, just before the release of the latest Fed Beige Book. In March this showed that the jobs market was only showing a slow improvement. Today’s picture is expected to offer a much more optimistic outlook; however, we should also look for signs of an acceleration in prices. Overall, it would be a huge surprise if this Beige Book didn’t offer a much more optimistic outlook for the US economy.
On the currencies front it was also a fairly quiet day with the US dollar slipping back across the board, however oil prices found a bid after the latest China trade data showed a decent rebound in imports, well in excess of expectations, and which, if accurate, should be reflected in Friday’s retail sales numbers for March.
One other thing to keep an eye on today is the debut of Coinbase on the Nasdaq at $250 a share later today. We’ve seen an increase in interest in cryptocurrencies over the past week or so with both bitcoin and ethereum hitting new record highs in anticipation of today’s direct listing.
EUR/USD – yesterday’s move through the 1.1930 area opens up the prospect of a move towards the 1.2000 area, though the 50-day MA could also act as a barrier at 1.1965. Support comes in at the 1.1860 area and the lows of the last three days.
GBP/USD – still has fairly decent support at the 1.3670 area, however a break below 1.3650 could well signal further losses towards 1.3550. We need to get back above 1.3830 to retarget the 1.3920 area.
EUR/GBP – still has solid support above the 0.8620 area, which keeps a move towards the 0.8730 area on the cards. A move below 0.8620 and the 0.8600 area retargets 0.8540.
USD/JPY – while above the 108.70 area there is the possibility of a move back above the 110.00 area to retarget the recent highs at 110.96. Below 108.70 retargets the 108.20 area.