BoE: to taper or not to shrink
At first it appeared that a softer-than-expected ADP report would rekindle the appetite of growth stocks, but the winds of reflation quickly returned to the market, forcing US big tech to erase previous gains and close the market. session down 0.37%. Dow advanced 0.29%.
The next big test for the market is for Friday’s NFP numbers. Yesterday’s ADP data was weaker than expected, but still showed the US economy created 742,000 jobs in April, more than the month before. And the expectation is a touch below a million nonfarm job additions in the same month. If nothing at all, the possibility of a strong NFP impression should keep investors on track for more reflation until the last NFP issue is revealed on Friday.
More jobs, improving incomes, soaring commodity costs, global shortages, slowing logistics indicate an acceleration in global inflation. The latter signifies a bellicose change in the expectations of global central banks.
We continue to see a sharp rise in oil and commodity prices. At the index level, this supports the energy-heavy FTSE as firmer oil and commodity prices should provide a stronger case for consolidation and extension of gains above the 7000p level.
US crude remains on track for a further advance to $ 68 per barrel. The latest EIA data showed U.S. crude inventories fell 8 million barrels over the past week from a 1.9 million barrel drop expected by analysts hinting at a faster recovery in l economic activity and energy consumption.
Gold, on the other hand, looks set to retest 100-day moving average resistance. The combination of flexible returns and rising inflation expectations is said to be a blessing for the yellow metal. Could the fact that the prices of other commodities have hovered around high levels for a decade could ultimately drive some capital into good old gold to prevent periods of higher inflation?
The strengthening of the US dollar is also a side effect of the reflation theme, as the Fed’s hawkish hawkish expectations provide material support to the greenback. Still, the gains remain on slippery ground as the data says one thing, but Jerome Powell says another. Who between the data and Powell would convince investors to go one way or the other is a million dollar question. A strong US employment figure on Friday will certainly shake Powell’s dovish stance and provide further evidence of tougher funding terms sooner or later. Therefore, we could see a stronger appetite for the US dollar at least until the data release on Friday.
In this regard, a further fall in EURUSD below 1.20 is certainly on the horizon. The next natural target for euro declines is at 1.1945, where the 50-day moving average meets the 200-day moving average for possible death cross formation.
Across the Channel, the Bank of England (BoE) is expected to maintain its own monetary policy today. It’s worth keeping an eye on the PMI numbers to understand the impact of the reopening of the company on the UK’s growth prospects. The cable stays just below the 1.40 mark. The MPC has mixed feelings about whether to start scaling back its massive bond buying program now, or to wait until summer before tightening the strings on the stock market. It is certain that the emissions reduction talks will have to take place at some point in the foreseeable future, but some UK policymakers will ask for patience until we see the UK economic recovery on track before taking any steps. concrete measures. It’s a real headache for BoE officials, but the fact that the Fed has been silent on the taboo talk of reduction could also encourage the BoE to stay another month. It might be better to follow the American lead on the typing scene. A hawkish take from the BoE meeting, on the other hand, should send GBPUSD above the 1.40 grip. However, the strength of the USD may limit the upside potential somewhat for a few more days.