The tech wreck made way for the Dow to join the selloff, after resurging inflation signs lifted yields at the expense of NASDAQ and bond prices (higher yields), says Adam Button of ForexLive.com.
To start the week, pro-cyclicals rotation died down, dragging Dow 30 and the S&P 500 (SPX) by 1.5% and 0.9% respectively, while USD lost most of its ground gained earlier. Metals are also making a bounce, ahead of the crucial US CPI release.
The big miss in non-farm payrolls on Friday led to some soul searching in markets but little in terms of a lasting move. Sterling surged after a middling mandate for Scottish independence.
Whether a higher-than-expected CPI helps the USD, will depend on the follow-up in US bond yields. But what many are ignoring is that rising supply-driven inflation does not move in a vaccum.
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Was the soft jobs report a game-changer? The trade on Friday was that it meant rates would stay lower for longer or would at least give the Fed some leeway to try out its patient approach to normalizing. On Monday though, the mood was more that it was a one-off report and that the dozens of other inputs of better growth are more relevant. That led to a big unwind in the stock and yield moves.
The US dollar, though, hardly bounced. A particularly large move came in cable, which jumped more than 150 pips to the highest since February. Some of that was technical as a series of March/April highs gave way but the tipping point was the Scottish election. The Queen's speech also helped boost GBP via improved political prospects for PM Johnson, following Labour's horrid showing in last week's local elections.
The SNP and pro-independence Greens together got enough votes for a majority but it wasn't a resounding win and with independence polls flagging and better growth on the way, the market clearly took the impression that no referendum is coming soon. Combine that with ongoing UK vaccinations and reopenings and there isn't much in the way of a return to the Feb high of 1.4242 and potentially to back to 2017 levels.
Specs are beginning to buy into the Canadian dollar rally and that's no surprise given the positive backdrop in commodities and acceleration in Canada's vaccine rollout. Friday's Canadian employment report was on the soft side, but lockdown measures should begin to ease this month and then it will be clear sailing.
Learn more about Adam Button by visiting ForexLive.com.
