The markets swung from red to green today as inflation fears waned, but benchmark yields rose into the London close. New all-time highs were made across major indices and this week we have a lot of data coming which could push the Nasdaq to 15,000. The Euro will be treading water for the most part whilst the Euro group meetings are ongoing.
To some, it may feel like gambling, especially if you have a bias at the London open and then have to reverse that thesis by the opening of the US session. Panning out to a weekly chart gives you the general direction of travel but using the lower time frame charts for timing your entry is a real skill that all investors and traders need to master if they use leverage or push the limit of their position sizing.
I often say that the markets do not like uncertainty, which is why it is often a wise idea to fade the news, especially if the asset has been traded quite heavily into the news. Sayings like “Buy the rumor, sell the news” are commonplace.
This morning the European bourses and FTSE 100 were red, with the UK index been dragged lower by the miners and anything associated to travel. At the London close, the FTSE was green again and up 0.19% to 7,129.60. Companies like Ryan Air are looking to hire 2000 new pilots as they see the end of restrictions in the UK as being the bottom in the air travel industry. The DAX had traveled further, breaking above the previous trading day’s high and making a new all-time high.
Some of today’s gains were in the Tech sector as word came through that the EU would put their plans for a Digital Services levy on hold. The US Nasdaq traded to new all-time highs too as the US session opened. Investors are prepping for the second-quarter earnings season starting this week in order to gauge whether corporate profitability can support equity valuations. Treasury yields edged higher, and the US government sold 58 billion new 3-year notes and will sell up to 38 billion of 10-year notes at auction later.
TLT is signaling that it feels yields are going to go higher today but as inflation worries are subsiding this increase in yields was not a major problem but had slightly dented investors’ confidence in Apple, Microsoft, and Amazon. Tesla is currently up 3.90%, with Google and Facebook both up 0.69% at the time of writing.
The US dollar hasn’t moved much today but it is continuing to trade above the daily 200 ema and looks poised to break higher assuming the 200 ema can act as support if tested.
Just before the London close, the US dropped a data point called Consumer Inflation Expectations. Today’s reading came in at 4.8% and above the previous 4% and market expectations. Tomorrow is US CPI which will be market moving if it beats expectations.
The pound was weaker this morning and closed the London session in the red. Unfortunately, there is nothing to cheer about with football anymore, and the miners and travel-related stocks really put pressure on the pound in early trading. The pound caught a bid when the EURGP got weaker from the US open which continued to fall into the London close, as US Fed Williams gave a speech on “Inflation: Dynamics, Expectations and Targeting” and the ECB bought €15.734 billion in their PEPP program.
The EURUSD is still hugging the 1.1800 - 1.1850 zone and US CPI could be the first time this week it moves. There are Eurogroup meetings scheduled for this week so we could get a reversal at any time.
ECB President Lagarde said “now is not the time to be talking about dialing back stimulus” but that the July meeting will be very important, and the market should expect a change to the policy guidance.
Peter Kazimir of the European Central Bank (ECB) Governing Council said that the central bank will not allow for the low inflation to "become entrenched" amid the still ongoing COVID-19 pandemic. But as a close watcher of the markets, I am surprised he hasn’t twigged that low-interest rates by decree, Bond buying asset purchases like PEPP and loose monetary policy leads to deflationary pressures. The current bank rate from the ECB is 0.000%.