Asia Market: Another Day, Another Record High

Markets

The new hurdle for further positive data surprise is apparently now pretty high, and investors have seemingly given up fighting the Fed – 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 if price pressure remains transitory or not.

For now, traders are signalling that US data doesn't mean much for policy normalization until at least August or September, when inflation data will provide the keen transitory inflation snap shot as the year-on-year comparison is getting exceptionally noisy due to considerable base effects. 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. That dented risk sentiment.

The S&P 500 hit a record high on Tuesday, and the Nasdaq composite index jumped as investors flocked to tech-related stocks and, by all accounts, took the well-telegraphed inflation "pick-up" in stride. All the while, markets remain seemingly unfazed by the halt in that J&J Covid-19 vaccine rollout. 

The US Food and Drug Administration says suspension of the J&J Covid vaccine is expected to come 'within a matter of days’ while, in the unlikely case, a fully suspended vaccine would prolong vaccination progress in the US. However, the Pfizer vaccine has extra production capacity; both Pfizer and BioNTech said they could produce up to 2.5bn doses in 2021 – globally, only 1.3bn doses have been ordered so far, which means the US could order more vaccines from Pfizer.

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 that 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’s now finding after the echo in market sentiment. 

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