Stock Indices Preview: Markets Pause at Records, US inflation in Focus
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Stock indices finished Friday on record highs, helped by a stellar US nonfarm payrolls report which came in at 531,000, beating the expected 425,000 jobs addition. Corporate earnings last week were also strong across the board, helping to encourage stock buyers.
There is little sign as yet that inflation is eating into company margins. For example, Goldman Sachs analysis shows European stocks have bettered analyst forecasts by 7%.
Underpinning the positive mood music was the US Federal Reserve and the Bank of England indicating last week that interest rates would stay low for longer than the market may have thought, with both central banks emphasising the need to protect the economic recovery as they wait for more data on the strength of labour markets.
Stock indices take a breather, Asia falls, UK’s FTSE lags
In US futures the Dow is up 0.2%, the S&P unchanged, while the Nasdaq is off 0.20%.
At the start of the European session the Stoxx Europe 600 is trading flat at 483 after also hitting an all-time high Friday.
An exception on the major markets to the record-setting melt-up in stocks is the UK. JPMorgan in a report today says UK stocks have underperformed US and eurozone stocks by 50% and 24% respectively, but thinks there could be now be some catch up, shifting its rating from neutral to overweight.
In Asia equity markets finished lower. The Nikkei was down 0.4% and the Hong Kong’s Hang Seng off 0.5%.
On Wednesday the markets will be eagerly watching the economic calendar for the US, China and Germany CPI inflation data.
The US inflation reading is expected to be 5.8% compared to 5.4% today, with core up from 4.0% to 4.3%.
The Sixth Plenum of thew Chinese Communist Party begins its meeting on Wednesday so markets will be interested if any further indications emerge regarding the direction of travel on the reforms that President Xi has been pushing around the theme of “common prosperity”.
Markets may be disconnected from actual inflation faced by consumers
Although the Fed stated it intends to take a “patience” stance on inflation, there are continuing worries in the background that there may be a misstep by policymakers that may require stronger action at a later day to curb inflation.
Dana D’Auria, co-chief investment officer at Envestnet, told Bloomberg highlighted the gap between how investors are behaving in the equity markets and the “real” inflation level being faced by consumers. “Inflation is the major headwind right now. There is a disconnect at this point between some of the expectations that we have about inflation and what consumers are feeling on the ground.”
Pfizer rockets on anti-viral drug news, Tesla falls after Elon Musk sale poll
On an individual stock level, Pfizer stock was up 10.8% on Friday at $48.60 following news of positive late stage trials for its antiviral Covid-19 drug, while Tesla shares are down overnight after a poll of Twitter users voted for Elon Musk to sell 10% of his stock holding in the EV company. Tesla shares are down 7% in premarket trading.
In other news that may affect equity markets, crude oil is higher after OPEC+ indicated it was in no hurry to increase output. Staying with energy, in Europe there are doubts that Russian suppliers will be able to increase flows of natural gas.
Although the US has reopened it borders to flights from Europe, Covid infection rates in Germany reaching an all-time high may partly help explain why travel stocks are still down this morning.
The US 10-year treasury note was up 3 basis point at 1.479%
