Vaccines vex, inflation to fall

Risk trades on Tuesday brushed up against the range tops but retreated late in the day on second thoughts about COVID-19 vaccines. The New Zealand dollar was the top performer Tuesday, while the yen lagged on the BoJ's to go deep in leverage (more below). Several inflation reports are due on Wednesday. Gold and silver made a convincing rebound, highlighting a well preserved trendlline. NASDAQ100 continued to fail in regaining the February gap, ditto for DAX, while SPX and DOW30 couldnt get near the April highs. 

A Statnews report highlighting the lack of data in Moderna's purported successful vaccine trial undid some of the optimism about the vaccine from Monday. Some of that stems from a secondary equity offering the company did on Monday after shares rose 20%.

More importantly, the intraday reversals on that news underscored the recent range tops on a number of fronts including AUD/USD, USD/CAD, USD/JPY and US stocks. Those all continue to be a better gauge of where markets are heading than uneven news flow.

On the fundamental side of things, Powell didn't add anything new and other Fed officials joined in on his campaign urging congress to spend more.

It was a different story in Europe, where Germany and France joined together to announced aspirations for a grant program that could be as large as 500 Bn euros, which is larger than rumored. More details will emerge next week but, as always, the reaction in the euro was half-hearted. It initially made a solid move then backtracked owing to the usual doubts about the ability to execute and the long timelines.

In Japan, it was a different story as the BOJ moved up the timeline for its meeting to Friday. Local reports said the BOJ will add leverage for a business lending program. That sparked a broad slump in the yen and helped to boost gold.

Looking ahead, the top data to watch is inflation in the UK, eurozone and Canada. Price rises everywhere are expected to slow dramatically in year-over-year terms and in Canada they're forecast to turn slightly negative. The issue at the moment is measurement and interpretation. Due to stockpiling, shortages and the crushing drop in energy, the picture about what's next isn't clear. Still, at face value the numbers will clear the way for more easing, including potentially negative rates from the BOE.

In the longer-term, the enormous growth in deficits spending and money supply will make inflation a defining feature of the decade and a critical debate.