European and US markets are making solid gains this afternoon, with the FTSE 100 80 points higher on the final day of the week.

  • Stock market rebound continues into a second day
  • Consumer inflation expectations spiking
  • US retail sales disappointment fails to dent risk appetite

It looks like a positive end to the week is in sight for risk assets, which have recovered from their inflation panic 48 hours ago. Stocks are advancing on a broad front, with advancers far outpacing the decliners in both New York and London. Yet again what had threatened to turn into a more dramatic selloff has been neutered, dip buyers seemingly as keen as ever to hit the button and jump in on any weakness. 2021 continues to resemble 2017 in the smallness of its pullbacks, combined with a declining VIX that reveals the full extent of investor willingness to take on risk. A lot of this depends on the current inflation outlook remaining firmly under control, but the spike in today’s Michigan confidence inflation expectations number should be viewed as a warning that consumers are worried about inflation, and the Fed needs to remain aware of that even if it leaves policy settings unchanged.

Even a disappointing retail sales number hasn’t dented confidence, but it is a worrying sign that perhaps the rebound isn’t as strong as hoped. But as with the CPI reading this week today’s retail sales number can be brushed aside for now – the future still seems much sunnier thanks to vaccines and the easing of restrictions, which continue to provide the underpinning of further appreciation in earnings. This week’s shakeout should be seen like those of January and February, namely a warning not to become too complacent in adding to positions. 

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