Overnight Headlines

*USD edged higher after better-than-expected manufacturing data  

*US equities closed mixed as economic reopening battled with inflation pressures

*Brent crude trading at highest levels since March, IEA bullish on demand

US equities lost steam through the day and closed mixed with value back in fashion, growth subdued and small caps outperforming. This meant the Dow closed up on the day, the Russell 2000 up 1.1% while the Nasdaq and S&P500 both closed modestly in the red. Classic value sectors – financials and industrials – and energy were the winners, healthcare and tech at the opposite end. US futures are flat.

USD creeped higher but traded below 90 on the DXY with GBP touching a three-year high of 1.4248 before dropping back to 1.4150 and printing a bearish engulfing candlestick on the day. The euro ticked up to 1.2254 following inflation data which surged past the ECB’s target but is currently trading around 1.22. USD/CAD briefly touched a six-year low before pulling back and closing with another bullish pinbar candle.

Market Thoughts – Commodities resume bullish path

The subdued dollar and the buoyant manufacturing data out of the US and China saw base metals push higher yesterday with copper closing above $10,000 for a third straight day. Nickel touched the highest level seen in three months while iron ore futures rebounded, which has been a key driver for AUD recently.

Several commodities across the board had suffered losses of 10% or so recently but it seem buyers are stepping back in. A healthy pause for breath, bulls will say, as commodities remain the best hedge against inflation. Stock markets care about higher interest rates whereas this does not matter so much for commodity returns as long as demand remains above supply.

Chart of the Day – FTSE 100 breaking higher

The UK’s FTSE100 has been called a “global cyclical bellweather” given that almost three-quarters of the total revenue of the index’s constituents is international. This means the benchmark is far more reliant on the performance of cyclical companies and sectors such as basic materials, financials and real estate, plus consumer cyclicals.

Technically, the index looks to have broken out of a symmetrical triangle pattern after printing several narrow range candles. Prices have compressed just above 7,000 and yesterday’s move pushed sharply higher, though prices gave back some of the gains into the close. The 50-day SMA offers support below the psychological 7,000 level while bulls can target the May high at 7,164 with the triangle pattern projecting a target around 7,370 if it plays out.