Sentiment towards risk remained positive ahead of the release of more Wall Street bank earnings and key US data, with retail sales and jobless claims coming up shortly. European stocks continued to push higher this morning with the UK’s FTSE breaking out to a new high for the year. The DAX was also near its recent highs despite news German COVID-19 cases have jumped by most since early January. In FX, commodity dollars were leading the gains against the US dollar as yields dipped.
Sentiment remains supported because of optimism over the re-opening of major economies as Europe's vaccination programme got a boost after Pfizer and BioNTech planned to increase deliveries in the coming weeks. The European Union aims to vaccinate 70% of adults by the summer, which should boost the travel sector. In the US, the delay to Johnson & Johnson's vaccine is not expected to slow the progress too much there.
Retail sales and jobless claims up next
The dollar recovered from earlier weakness ahead of the retail sales data, due at 13:30 BST. Headline sales are seen rising 5.8% month-over-month with core sale expected to come in at 5.1%.
We have had plenty of positive news from the world’s largest economy in recent times, both from a macro point of view as well as company news. Yet, neither the dollar nor bond yields have reacted in the way you would have expected, with both falling (see chart of 10y yields below). This is a reflection of growing risk appetite, with investors convinced that a bit of improvement in data is not going to change the outlook for interest rates much. So, it is possible that if today’s retail sales beat expectations that we might get a knee-jerk reaction higher in the dollar, before it resumes lower in favour of the more risk-sensitive currencies. The dollar will probably make a more meaningful comeback when there is a lot more evidence of the US economy running hot to raise concerns about inflation. Right now, the markets believe that is not the case.
More bank earnings
The focus will remain on bank earnings after the Wall Street giants kicked off the reporting season in style yesterday as Goldman Sachs crushed it with triple-digit revenue growth. Bank of America and Citigroup will report earnings ahead of the bell. We have already heard from the likes of Blackrock and US Bancorp, which reported above forecast revenue and earnings. PepsiCo also beat on both top and bottom lines, as too did UnitedHealth.
So far it has been another solid day for quarterly earnings. But with so much optimism having already been priced in with the major indices in the US hitting repeated all-time highs, the market will now want to see if the optimism is justified. The key question going into the earnings season is this: Will company CEOs mirror investors’ optimism on economic outlook, or will they provide more subdued forecasts? Until now, investors have been quite happy to be buying any dips in equity markets amid growth optimism and despite rising inflationary pressures and valuation concerns.
Crude oil steady after upsurge
Oil prices jumped nearly 4% yesterday to reach their best levels in a month
. Sentiment was boosted by fresh signs of a tightening market as shrinking crude stockpiles in the US added to optimism over stronger demand globally. Keep a close eye on prices as WTI tries to break resistance in the $63.15-$63.60 range and Brent tests its own key resistance around $66.80. If these levels give way then expect further technical buying in the days ahead.
Coinbase volatile debut
Investors will also be keeping a close eye on Bitcoin and other digital currencies after the largest US cryptocurrency exchange, Coinbase, went public yesterday. COIN’s debut saw its shares open well above the reference price of $250, at $381. The stocks quickly flew to an intraday high of $429.54 before dropping to $310 and eventually settling at $328, giving it has a market cap of $74 billion at the close. It will likely remain volatile for a few days more, providing lots of trading opportunities.
Bitcoin has fallen from its record highs but at the time of writing it was holding its own well above the key short-term support in the $60,000-$61200 range. Meanwhile, Ethereum has climbed to a new record high. The path of least resistance remains to the upside for cryptos, for now.