April 12, 2021 13:04:46

Headlines

* Fed Chair Powell says the US economy is at an inflection point

* Biden’s infrastructure plan tops priorities as Congress returns to work

* Eurozone retail sales rose 3.0% m/m beating estimates

US equity futures are edging lower to start the week after hitting new record highs on Friday. With Asian stocks faltering, European indices are mixed and consolidating their strong performance seen last week when the FTSE100 enjoyed its best weekly gains since early January.

USD has dipped after paring earlier gains as it battles with the widely watched 200-day moving average on the DXY. The moves are relatively mild with GBP gaining modest ground as traders look to US data later in the week.

US bond yields pulled back last week from 14-month highs but are edging higher at the start of a big week for issuance. The bid in bonds has eased worries about higher borrowing costs, helping richly valued high-growth technology stocks gain ground and drive the stock markets to record levels.

Market Thoughts

Tuesday’s release of US consumer price data for March and the restart of US Treasury auctions this week after a two-week lull could end the relative calm in the bond market, reigniting a rise in yields that has been worrying investors for some time. As long as this rise isn’t too fast and volatile, then stocks should hold their ground with unprecedented monetary and fiscal stimulus still on tap.

This week sees the US first quarter earnings season begin with big banks like Goldman Sachs and JP Morgan reporting on Wednesday. S&P500 earnings are forecast to have jumped a stunning 25% from a year ago, the largest quarterly rise since 2018. Are markets pricing in too much and liable for some disappointment?

Leadership in stocks is at an interesting juncture as the recent stellar outperformers – small caps and cyclicals – are now underperforming the wider S&P500. This is a possible warning sign that the actual reopening of the economy may be harder than thought.

Currency Majors

GBP is one of the better performers today with last week’s sharp rally in EURGBP showing signs of steadying. The UK is enjoying the next phase of restriction easing from today while the successful vaccine rollout continues. Overnight support at 1.3675 is key, having held here in late March and the bulls are hoping to press on towards 1.38 and beyond if the bull flag on the weekly chart does what it should do!

EUR had its strongest week since December and is trying its best to break decisively above its 200-day moving average around 1.19. Last week’s high at 1.1927 is the first line of resistance, but the downward trend channel from the start of the year remains in place for now. European retail sales data came in well ahead of estimates and more progress on retail activity is still to come on the continent.

AUD has a busy week ahead with Aussie jobs numbers acting as a decent gauge of the pace of the recovery, while trade data out of China will be the focus towards the end of the week. If US bond yields start to rise again, then high-yielders like the aussie may start moving, with positive Chinese sentiment also helping. Watch the ranges between 0.7563 and 0.7676 for any breakout.

Key Events

It’s a relatively light docket today but all eyes will be on tomorrow’s US CPI data, with the headline figure expected to jump to 2.4% y/y from 1.7% due to base effects from the rock bottom print a year ago.