Stocks are mixed this morning after the very volatile trading day in the US yesterday, with equities ending mostly higher. Developments in bond yields continue to dominate risk appetite and also sector rotation which my colleague, Hussein, highlighted earlier today. Cyclical stocks outperformed defensives and value made its eighth straight day outperforming growth.
The US FDA released its report on the Johnson & Johnson single-shot vaccine and found it “safe and effective”. Interestingly, the vaccine has also been tested in Brazil and South Africa where other strains are dominating and yet it remained effective. The J&J drug is expected to now get approval on Saturday which means the market has more positive news to feast on. With more fiscal support on the way, warmer weather and falling Covid-19 cases are lifting market spirits once more.
Dollar down n’out?
Today’s rise in bond yields is being seen by the market as driven by “good” economic factors so the move higher through resistance at the 2019 low (1.43%) today is not detrimental for risk assets. Correspondingly, it is not benefiting the dollar which looks to have broken down decisively through 90. The safe haven JPY and CHF are the laggards and dollar bears are now eyeing up the cycle lows around 89.16 with the neckline failing to offer concrete support.
This afternoon’s calendar sees US jobless claims, a revision of US GDP and US durable goods in focus. The jobless numbers might spark some intraday volatility, but reflation and global trends seem to be foremost in the minds of traders. Several Fed members will speak later tonight though they are unlikely to say anything new with the Fed remaining very patient about removing monetary policy accommodation.
EUR/USD breakout
The world’s most traded pair has been fairly quiet these past few weeks but today has seen a sharp move higher with a break above 1.2190. This further suggests that the reflation narrative is still counterbalancing higher US yields as a driver for the greenback. Next stop for the bulls if they can consolidate this advance will be this year’s highs which printed at the start of the year around 1.2350.
The poor vaccine rollout has been holding back the single currency, but we did get confirmation yesterday that the German economy will avoid a technical double-dip recession with the current quarter’s contraction.
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