US equities were stronger overnight led by a rebound in tech stocks. NASDAQ was up 1.2% as US 10-Year yields fell 4bps to 1.69%.
Allowing global risk asset to breath easier, US yields have eased ahead of crucial congressional testimony from both US Fed Chair Powell and Treasury Secretary Janet Yellen.
And widely expected, they will “double down” on their dovish inflation views that any rise in prices was likely to be transient and unlikely to affect policy.
In the meantime, on the data front, US February existing-home sales fell more significant than expected (6.6% in February, versus forecasts for a 2.9% decline), possibly a by-product of the rise in long-end yields.
Still, the cooling down of the US real estate market and lower oil prices have helped ease some inflation angst, likely causing US bond yields to slide a touch. It allowed Tech and other long-duration and interest rates sensitive assets like gold to recover off recent lows.
In an oversold bond markets, any weaker US economic data print will trigger a pullback in yields. Still, it also supports the “other side of the coin” view that the reopening will be more gradual and less inflationary than people think.
When rates are going up, there is an equal yet less vocal group that suggests, “sure, the lift-off will be inflationary, but we’ve priced that in now”. The thinking here is that there is a ton of slack and plenty of disinflationary forces to help offset the coming burst in demand for travel, tourism, and real-life experiences.
Unquestionably, the post virus boom narrative has taken a bit of a hit from several sources. Asia demand is still struggling and Europe is determined to find a way to get another virus surge, consistently aiming at their own feet rather than their citizen’s arms.
While in the US, the negative surprises from last weeks Industrial Production and Housing starts have tempered some of that “boomy“ feeling.
Although I suspect the US data may be due to Texas’s cold weather shutdown and the fall in housing starts part and parcel to some pretty outrageous lumber prices.
The problem for risk markets is inflation will be an ongoing debate for another 6 to 12 months, if not longer. So, expect to remain stuck in the rough and tumble inflation “lather rinse and repeat” cycle as the rising tides of inflation ebb and flow.
Oil price recovery remains delicate
The massive implosion in the oil market of late emphasises how delicate the price recovery is at this stage amid the plenitude of competing forces and views over the market’s evolution.
Sentiment continues to run cool as Europe seems determined to find a way to trigger another virus surge, consistently aiming at their own feet rather than their citizen’s arms.
To be fair to the incredibly inept vaccination effort on the other side of the pond, it might be as much about citizens keeping their arms in their sleeves as governments missing the mark after the AstraZeneca health scare.
Still, oil prices are finding some comfort from the latest TSA data, which is the clearest signpost folks are starting to move around more freely in the US Air passenger numbers in the US continue to grow, with more than 1.5 million passengers travelling through airports on Sunday, according to the TSA.
That is the highest number of passengers since March 13 last year.
But after a violent and heavily subscribed WTI self off into expiration (March 22) where preliminary data points to 180- million-barrel departure, one would think positions should be much cleaner after that massive cleansing of speculative froth.
Still, oil prices are not recovering anywhere towards signalling a return of the bulls just yet. Indeed, this could be suggesting the upcoming OPEC meeting as a possible overhanging risk beyond the current roll carry uncertainty.
Market analysis from Stephen Innes, Chief Global Market Strategist at Axi