April 13, 2021 13:33:48

Headlines

* US March CPI leapt to 2.6% versus 2.5% expected y/y

* US calls for halt on J&J virus vaccine after clotting concerns

* UK GDP reveals slow growth out of lockdown in February

US equity futures are mixed with Nasdaq futures gaining on the Johnson & Johnson vaccine news amid health concerns. But Dow futures are lower on the inflation jump and the small cap Russell 2000 lost almost 1% with the J&J worries dealing a blow to efforts to reopen the world’s largest economy.

USD has sold off as the inflation print has seen an inflation-skittish market breathe a collective sigh of relief that the figure was not at the higher end of estimates.

US bond yields are also lower after the not-too-hot inflation data, having steadied after Treasuries unwound losses but then quickly changed course after the J&J news.

Market Thoughts

US headline consumer prices rose 2.6% in March, amid the fastest month-on-month increase since 2012, in what could be a series of readings that will show inflation running well ahead of the Fed’s 2% target. The key energy part of the release rose 13.2% and the FOMC hopes this spike will be transitory when it comes to deciding on any policy action in the months ahead.

Indeed, investors clearly understand that the fastest readings are the result of comparisons that came amid the worst of last year’s pandemic and Fed officials have been consistent in their messaging that the gains won’t induce interest rate hikes. The market has reacted in line with this thinking, with the yields and the dollar lower as they look through the data.

The market’s next focus is on bank earnings tomorrow which will set the scene for this earnings season. Broadly, analysts on the street are looking for 24.5% S&P500 earnings growth year-on-year, although traders are more expectant, hoping for something closer to 30%. This is because analysts have consistently low-balled corporate earnings since their trough in the second quarter of last year. Data Trek note that the average quarterly beat since the pandemic lows has been 13 points.

Currency Major

USDX has sold off with prices really struggling to get above the 200-day moving average. The gentle upward bullish channel that started at the beginning of the year is still intact but prices are in danger of rolling over and testing the lower part of the channel if we see a strong close below 92.

GBP is once again one of the better performers today with GDP earlier today showing the economy expanded by 0.4% (0.5% consensus) in February compared to the 2.2% decline in January. With the country enjoying the next phase of lockdown easing, a strong rebound is expected which should bring decent data.

Cable is trading in a narrow band but the 100-day moving average just below 1.37 is proving strong support. As long as this holds, the long-term bullish trend is expected to resume soon.

Key Events

Wednesday is relatively light on risk events, save for a RBNZ meeting which is expected to be a non-event. This comes ahead of the employment report out of Australia and US retail sales released on Thursday.