Friday’s historical non-farm payrolls miss has been a sigh of relief for global markets, because it means the Federal Reserve won’t pull away the punch bowl just yet. The excess liquidity 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,” commented Ipek Ozkardeskaya, a senior analyst at Swissquote this morning.
“Although the post-NFP-high could leave its place to some hangover by Wednesday, when the US will announce the April inflation data,” she continued.
The headline inflation is expected to have jumped to 3.6 per cent year-on-year from 2.6 per cent printed a month earlier, and from 1.7 per cent 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 per cent in April from 4.4 per cent printed a month earlier.
But why would anyone even bother?
A rapid rise in oil and commodity prices, global shortages, slow logistics 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 8m people looking for a job. That’s not investors’ problem,” Ozkardeskaya explained.
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, she added.
“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,” Ozkardeskaya noted.
“Gold bulls have all cards in hand to make a successful attempt to the $1850/52, the area including the 200-day moving average,” she said.