A brief pause

Wall Street takes a break

As is usual these days, a divergence from the market narrative leads to a mad scramble to find a news story to fit the unexpected market moves. The latest Bitcoin powered jump in equities ran out of steam overnight, with Wall Street having, shock of shocks, an almost unchanged day. It really shouldn’t have worried market watchers, as the US dollar sell-off accelerated, and both oil and precious metals carved out more gains.

In all likelihood, after a few firm sessions, equities just ran out of short-term momentum, with a lack of new drivers from the Biden-stimulus progression prompting a wait-and-see-for-a day approach. The buy everything trade still has the upper hand and FOMO hasn’t gone, it’s just taken a little rest. US index futures have resumed their upward ascent in Asia this morning right on cue.

Equity markets everywhere, including the US, remain at or near all-time highs. The only possible blip being the US inflation data this morning. With the Democrats seemingly intent on rolling the stimulus package through mostly unchanged, over Republican objections, as a higher print than 1.60% for the Core Inflation number, tonight could see inflation fears make a temporary return. That would likely push US yields a bit higher and in turn, lift the US dollar. Equity markets would likely retreat, but any dip is certain to meet the FOMO army.

China’s inflation data this morning served up no surprises. For January, Inflation MoM printed right on target at 1.0%, with the YoY falling -0.30% versus 0.0% expected. With many seasonal distortions in the lead up to Lunar New Year, plus the odd Covid-19 lockdown or two, China will get a pass mark from financial markets, particularly after robust aggregate financing data yesterday.

Activity in Asia suggests that regional investors are not taking positioning off the boards ahead of the Lunar New Year holidays. If anything, it is precisely the opposite, with Asian markets performing well today. From tomorrow China is away for a week, along with most of Asia over the next few days. That will crimp activity and today is probably the last day this week we expect to have anything exciting to write about in Asia. Famous last words.

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