- A lower USD is good for US equities.
- Inflation skepticism may have turned into reflation optimism.
The US stock market index SPX 500 opens in green around 2.715, up by almost 0.7% in New York session on positive global cues disregarding surging bond yields and higher inflation. The earlier skepticism about inflation may have turned into reflation optimism on the narrative that a weaker dollar is positive for loose financials conditions and global Goldilocks rally. A weak USD is also good for US equities (exporters and global companies) and the economy (imported inflation).
The VIX volatility index fell to a 1-week low and is a supportive factor for stock prices as global equity markets recover further from last week's sharp sell-off.
Overnight, the US equity markets recovered from post-CPI panic lows and closed higher on optimism about dovish Fed in the days ahead after lower retail sales, a muted consumer spending and serie of GDP downgrades. The market bounced back on goldilocks optimism despite higher bond yields and an indication of stagflation in the US economy.
But, the bond market may be concerned about twin US deficits (fiscal and current account) and higher inflation and therefore bechmark10-year US Treasury yields hover around 2.95%, eyeing the 3% in the days ahead, which may be the biggest headwind for stocks.
Europe is trading in positive on global optimism and some earnings boost from blue chips like Nestle & Airbus coupled with the brighter prospect of German political stability despite the concern of a higher Euro on exporters and multinational corporations.
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