The S&P500 hit a record high overnight and the Nasdaq composite index jumped as investors flocked to tech-related stocks and took the well-telegraphed inflation ‘pick-up’ in stride. Markets remain seemingly unfazed by the halt in Johnson & Johnson’s (J&J) COVID-19 vaccine rollout.

Inflation came in hotter than expected in March, as the closely-scrutinized data out Tuesday showed. Still, it may not be a simple case of straight-line extrapolation. Those same base effects will boost data in April, May, and June.

Consistent with peak seasonal US data, could contribute to slowing again in later months of the year when seasonal trends reverse. Indeed, this is a growing view among the world’s top economists who know a lot more about inflation than traders and analysts do. And it is now finding after the echo in market sentiment.

The new hurdle for further positive data surprise is apparently now pretty high and investors have seemingly given up fighting the US Federal Reserve for now.

As was the case with the US non-farm payrolls and ISM release, the rates markets had US CPI data priced to perfection. On either account, US equities continue to welcome any high-risk event being put in the rear-view mirror, especially when rates markets look prime to consolidate lower as the market tries to iron out of price pressure remain transitory or not.

And for now, traders are signalling that US data doesn’t mean much for policy normalization until at least August or September. At the moment, the year-on-year comparison is getting exceptionally noisy due to considerable base effects.

Halt on Johnson and Johnson vaccine

To the extent you could discern anything concrete from the market reaction to the report, it was at least partially muddled by the almost simultaneous news that US health officials were halting vaccines with Johnson & Johnson’s (J&J) shot.

Investors will need some proof in the earnings pudding to take the next leap of faith and confirm the lofty expectation with S&P500 earnings pegged to rise 25% in this quarter from a year ago. That would be the biggest quarterly gain since 2018 when tax cuts under former President Donald Trump boosted profit growth.

Major central banks may have formal independence, but the current Fed actions reflect the social and political backdrop in which they operate, enhancing their desire to fall behind that inflation curve.

Dovish Fed under chair Powell

The Fed under Chair Powell’s leadership has meant a remarkable dovish shift by focusing first and foremost on healing the labour market by recognizing the enormous redistributive power of a booming economy—one that generates both plentiful jobs and healthy wage growth, especially for low-income and minority groups.

I’m not suggesting the market has turned passionate, but investors agree that now is not the time to exit from exceptional measures given the enormous healing tasks ahead.

China tightening is getting harder to ignore

However, not to rock the boat, it is getting harder to ignore the tightening in China. Single-name credit concerns in China have had little to no contagion impact in recent years, so I do not want to overstate the importance of the China Huarong story—it could be another one-off, and things roll up on fine.

On the other hand, there is clearly a desire to tighten the screws on speculation and financial excess in China, and none of that is great for asset prices that are hitched to the China recovery train.

Oil rises on weak US dollar

With bigger fish to fry and likely to defer to the Department of Energy (DOE) report tomorrow, oil traders and prices remain entirely unmoved by the small offsetting draw in crude to a larger than expected build in gasoline.

Oil prices remain buoyed by a weaker US dollar and a confluence of a sturdy US economic recovery and Chinese solid import data that points to a domestic revival.

And the sentiment was further bolstered when OPEC suggested a brightening outlook and stimulus packages will boost economic activity and oil demand this year. And by all accounts, everyone to a tee expects to see a powerful spring and summer for US gasoline demand.

Crude prices continued to drift higher most of the EU and NY sessions, reacting to the buoyant macro outlook. However, momentum is still capped by new vaccine health concerns as the Adenoviral vector vaccine may have a problem and the continuing lockdown effects as traders await clear evidence of rising global demand.

On the supply side, the EIA’s signalled US shale production bottoming in April/May. This is consistent with the higher rig count and the pick-up in well completions that we are seeing with could be the ultimate supply hurdle for oil prices heading into peak US summer driving season.

Market analysis from Stephen Innes, Chief Global Market Strategist at Axi