Fragile appetite before US PPI figures

Major US indices rallied on Thursday after the Federal Reserve (Fed) Chair Jerome Powell showed he is more concerned with the rising Covid cases than the rising inflation expectations, and that despite ‘some parts of the economy doing great, there’s a very large group of people who are not. And as long as the American economy is not doing ‘great’ again, the Fed is here to give a hand. As such, Powell’s commitment to the ultra-supportive monetary policy stance regardless of the rising inflation worries isn’t only boosting the U jobs market, but continues boosting the US stock markets as well.  

It took some time, but Powell is now doing great in taming the beast that’s the market; his dovish stance goes through, the US yields are under control and the risk appetite is here, yet fragile. 

Because, due today, the US producer prices could again revive the worries of seeing an overshoot in inflation, as the headline PPI figure is expected to have shot up to 3.8% year-on-year in March from 2.8% printed a month earlier, mostly due to higher energy costs and global chip shortage. Whether investors will remember Powell’s words that the overshoot in consumer price inflation should not last long depends on the strength of the data. Panic of seeing a too-strong PPI could brush aside the Fed doves before the weekly closing bell. Although investors know that any loss of appetite in US stocks would remain short-lived.  

The S&P500 hit a new all-time record, as Nasdaq closed 1.03% higher. 

Gold, the safe haven, advances along with the risk assets, as the combination of stable US yields and rising inflation expectations offer a favourable setting for the non-interest-bearing gold investments. Bulls and bears are fighting a fierce battle a touch below the 50-day moving average, $1760 per oz, if cleared, should reverse the mid-term negative trend in gold. 

Tech stocks are doing fine, as the reflation theme is pushed aside on the back of the rising Covid worries and dovish Fed expectations.   

Apple rallied nearly 2%, as Microsoft added 1.34%.  

Netflix gained 1.39% on news that Sony Pictures will stream all movies exclusively on Netflix from next year. Spider-Man and Jumanji franchises are also included in the deal, which increases the Netflix offer to larger and a more exciting pallet, and could boost subscriptions. This is good news for Netflix, as Covid continues nailing millions at home, and the vaccination efforts seem to remedy, but not as fast as hoped. The Covid cases mount worldwide, China is apparently running into a vaccine shortage and may not reach the goal of giving a shot to the 40% of its population by June, while the drama around the AstraZeneca vaccine is not over. There is news that people less than a certain age should not receive the shot; taking the risk of having a blood clot is not necessarily worth the benefit for the youngest. On the other hand, authorities in Europe recognize the correlation between the AstraZeneca vaccine and the formation of blood clots but continue campaigning in favor of receiving a shot anyway, as the benefits are higher than the risks, on individual and collective perspective. Still, in some places AstraZeneca vaccines remain refused even in the absence of alternatives, and no one can blame people for refusing the shot.  

AstraZeneca shares are back to the March levels but remain well above the pre-pandemic range. There is room for a further downside correction, although the blood clot issue should not eat into all profits. So investors and patients have pretty much the same dilemma of trusting AstraZeneca despite the known risks because the overall situation is not brilliant, and the scarcity of doses gives a chance to a less-than-ideal solution.