Inflation is rising again. Is that so? Stubborn inflation data, be it from the UK last week or today from Australia, where CPI data rose in April instead of cooling as expected, or from Germany (just reported) where inflation is now back to 2.4% YoY (from 2.2% in April; preliminary data).
The growing concern that the inflation problem will last longer and that central banks will keep interest rates high for longer is weighing on market sentiment. Equities and bonds are retreating. Disappointing demand after yesterday's auction of US treasuries and generally hawkish comments from Fed officials continue to push yields higher. There is another US Treasury auction today (for 7-year US-Treasuries).
Wall Street futures are pointing to a decline of 0.5% to 0.6% at the open, and the European Stoxx 600 is also down -0.5%. After yesterday's sharp rise in yields, which pushed German bond yields to a six-month high, there is little sign that interest rate fears will subside ahead of this week's US PCE data – the Fed's key and preferred inflation reading. Also the Asian session was mostly negative today.
On a positive note, UK inflation is still cooling (previous week's data) and German inflation, although hotter, was pretty much in line with expectations. Markets continue to expect the ECB to cut interest rates for the first time in June.
The risk of higher yields putting pressure on the expensive equity market seems to remain for the time being. However, inflation is also rising due to a global economy that is largely resilient or even growing (US economy). The continued strong performance of US mega-caps, very solid corporate earnings and AI enthusiasm are keeping markets up – although we expect pressure to continue as yields are likely to remain elevated due to rising inflation concerns.
The Nasdaq Composite hit a new ATH yesterday, supported by the mega-caps, particularly Nvidia. However, the importance of mega-cap stocks, such as the Magnificent Seven, has now reached a record high following Nvidia's very strong earnings after its earnings report.
We also see continued demand for energy as WTI has risen back above $80/barrel. Other commodities that are important to industry also remain at high price levels – which does not suggest disinflation, but is a sign that the market as a whole remains optimistic. Gold made a U-turn just as many traders were expecting a strong recovery in the yellow precious metal after last week's heavy losses. We immediately understood the rise in fundamental headwinds and positioned us SHORT near yesterday's highs. With yields rising again, gold remains under pressure from a fundamental perspective. I also expect the USD to edge higher ahead of the PCE data, with yields, however, not only rising in the US but globally.
👁 ROB'S MARKET OVERVIEW:
May 29, 2024
🌐/🇺🇸 Global Markets ↘️/➡️
Cyclical / Luxury Stocks ↘️/➡️
Tech/Growth Stocks ↘️ (giving back some of the recent strong gains)
Financial Stocks ↘️/➡️
Defensive Stocks ➡️
Energy Stocks ↗️/➡️
Materials Stocks ➡️/↘️
💱 Forex
USD ↗️ (remains in rebound mode with risk sentiment worsening)
EUR, CHF ↗️/➡️
AUD ↗️/➡️/↘️ (initial gains after hot AU inflation lost, headwinds on worsening risk management & stronger USD)
JPY ➡️ (supported by safe haven demand, remains slightly bearish)
CAD ➡️ (support from higher energy prices, headwinds from stronger USD)
GBP ➡️/↘️
⚒ Commodity Markets ↗️/➡️
Oil prices ↗️/↕️ (likely finding resistance today – potentially some profit taking)
Natural Gas prices ↘️/↕️
Metal prices ↘️/➡️
Gold ↘️ (headwinds from rising yields / stronger USD)
⚡️Cryptos ↘️/↕️ (headwinds from rising yields / stronger USD – BTC potentially re-testing $67K)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
