Shares Wary over US Inflation

On Monday, stocks struggled for momentum, as investors were waiting for key US inflation metrics for guidance regarding monetary policy. In the meanwhile, a battered Bitcoin rebounded after the hammering it had received due to China’s crackdown on trading and mining of cryptocurrencies. There was a 0.1% rise in European stocks after they gained support from the data revealed on Friday that highlighted the euro zone’s and Britain’s accelerating business growth in April. The same day, Christine Lagarde, the President of the ECB asserted that it wasn’t time for the banks to talk about winding down their stimulus scheme of 1.85 trillion, which further lent support.

Markets in Germany, Switzerland, Norway, Hungary, Denmark, and Australia were shut down for a holiday. Expert economists said that the United Kingdom and the eurozone had begun to boom as their economies had started reopening. They said that declining fatalities, easing lockdowns, faster vaccinations, and falling hospitalizations were boosting confidence and helping recovery across Europe. There was a 0.1% improvement in the MSCI world equity index as well. In contrast, a 0.2% fall was reported by the broadest index of Asia-Pacific shares of the MSCI outside of Japan due to slow trading.

There was a 0.4% jump in Chinese blue chips, while the Nikkei in Japan saw a rise of 0.2%. There was an increase in Nasdaq futures by 0.4%, whereas a 0.5% improvement was seen in the S&P 500 futures. Belarus’ sovereign dollar bonds fell by as much as 2 cents after an airline was forced to land on Sunday by Belarusian authorities and an opposition-minded journalist traveling on the plane was arrested. This act was condemned in the United States and Europe. After the surveys on Friday showed strong growth in the global service sectors, all eyes are now turned towards US inflation and personal figures this week. 

Alarm bells will start ringing due to a high core inflation reading and could result in discussions about an early tapering off by the US Federal Reserve. This week, there will be a crowd of Fed speakers, which include Lael Brainard, the Fed Board Governor. Markets will be interested to hear if the Fed plans to stay on the script when it comes to sticking to policy. The Fund Manager survey of BofA conducted monthly indicated that 69% of the respondents were expecting above-trend inflation and economic growth globally. Therefore, managers were pushing into late-cyclical and commodities, where overweight positions had reached a high of 15 years. 

Bitcoin appeared to be the most crowded trade. According to BofA analysts, these are bullish views when it comes to inflation and growth and it could be risky for investors if inflation turns out to be temporary and growth slows. Moreover, tech was crowded quite recently but is now underweight. If inflation fears go down, it will benefit the tech sector once more. On Sunday, Bitcoin fell by 13%, but had climbed up by 6% on Monday to reach $36,735. However, it was still more than 40% down from its all-time high. 

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