More fear than harm

Friday’s historical NFP miss has been a sigh of relief for the market; the Federal Reserve won’t pull away the puch bowl just yet. The excess liquidiy is here to stay, the historically low funding costs as well. 

Therefore, we will most probably see a strong investor appetite for both growth and value stocks at the start of this week. Although the post-NFP-high could leave its place to some hangover by Wednesday, when the US will announce the April inflation data. The headline inflation is expected to have jumped to 3.6% year-on-year from 2.6% printed a month earlier, and from 1.7% printed two months earlier. Before that, the Chinese producer prices due Tuesday could already dampen the investor mood, if producer price data confirm a jump to 6.6% in April from 4.4% printed a month earlier.  

But why would anyone even bother? 

Rapid rise in oil and commodity prices, global shortages, slow logistics sure point at higher inflation globally. Yet, as long as the US employment data remains weak, the Fed will maintain its monetary policy as loose as possible, even if it serves the ever-wealthier investors more than it serves the 8 million people looking for a job. That’s not investors’ problem. 

Therefore, this week’s inflation data should not be a material risk to the positive trend in the global equity markets.  

Also, Friday’s NFP miss has come as a warning that the market expectations may have gone well ahead of themselves. And the same could be true regarding the inflation expectations. If that’s the case, investors could give more weight to Jay Powell’s prediction that the inflation peak may only be temporary, and the latter could only boost the risk appetite and carry the major US indices to uncharted territories. 

The US dollar is softer across the board and the USD bears are only waking up from hibernation. The US dollar should continue losing field against its major peers. The euro and the pound will inevitably extend gains above the 1.20 and 1.40 respectively, at least until Wednesday’s US inflation data. 

Gold, on the other hand, couldn’t ask for a better combo than the rising inflation and soft US yields. Gold bulls have all cards in hand to make a succesful attempt to the $1850/52, the area including the 200-day moving average.  

WTI is supported by the latest cyber attack on the US Colonial pipeline. The latter cyber incident, combined with the prospects of improved global demand, provides a stronger case for a further advance to the $68/70 region.  

On the company level, there is no doubt that Biontech had a great quarter thanks to the Covid vaccine. And even last week’s aggressive sell-off on the rising threat to its vaccine patent has only been a good dip-buying opportunity for those who believe that Biontech will certainly find enough demand to operate at full capacity, with ot without rising competition.