Overnight Headlines

*USD was softer as inflation concerns continue to rattle stocks

*US equities extended their selloff with broad weakness

* Vix or “fear gauge” jumped by another 11% to 21.84

US equities managed to recover from their initial 2% selloff during the session with rotation reversing again. The dip in growth (tech) was brought into while value was under pressure with the Dow closing 1.4% lower and Nasdaq and Russell small caps indices only just in the red. Industrials and financials were the worst performers and tech the relative outperformer. Asian markets are mixed with European stocks set to open lower.

USD ended marginally lower, off its worst level (89.98) with the dollar not benefitting from sinking equities. EUR/USD touched 1.2182, highs not seen since February, before falling back while GBP/USD consolidated at its recent highs. UK GDP just released showed a -1.5% q/q decline which was a pretty resilient performance amid lockdown and much less than had been feared at the start of the quarter.

Market Thoughts – Rising prices in focus

The inflation impulse has smothered markets this week hitting stocks and pushing nominal bond yields higher. This risk aversion has stabilised the dollar though it is not supporting the greenback as much as many think it should.

Markets will zero in on today’s US inflation print which is expected to be distorted by base effects on a year-on-year basis. Any signs of faster underlying price pressure will be seized upon and hurt risk assets further. That said, the moves this week have been relatively strong and with some economists forecasting a 4%+ figure, it does have the feel of a short-term “buy the rumour, sell the fact” type market if we get a weaker number, although commodity prices especially continue to surge higher.

Chart of the Day – Oil still poised

In its latest monthly report, OPEC left its forecast for 2021 world oil demand growth unchanged at 5.95 million barrels per day (bpd), as reported by Reuters. The cartel cut its second quarter world oil demand forecast but raised their second half estimates. India is the main drag and will face a negative economic recovery impact this quarter, but it is expected to continue improving its momentum in the next quarters.

Technically, not too much has changed with things looking bullish on the charts. The MACD is still pointing to higher prices though has slowed but any dips have seen buyers step in fairly swiftly. The upward trendline from the end of March is supporting nicely with the 50-day SMA doing a similar job just below around $66. Place stops below yesterday’s low at $67.13 and target new cycle highs at $71.36 and beyond.