Equities Rebound as Bond Sales Slow, but Inflation Fears are Looming

#OPINIONLEADER#

Risk sentiment improves both in the European and the American stock markets since yesterday, thanks to the abating sovereign bond selloff. Yet, the sovereign bond bears are not far with the prospects of less central bank buying, and that means that they will continue threatening the gains in the coming weeks. Therefore, the choppy trading is here to stay as the strategic positioning in the market is changing along with the fundamentally, and perhaps unreversible hawkish shift from the major central banks, unless inflation abates magically.

Yesterday, financials and mining stocks took the lead, small caps outperformed their big cap peers, with Russell 2000 bouncing 1.63%, whereas gains in the major US indices remained between 0.85% and 1.30%.

US crude slipped below the $90 per barrel although the weekly API data suggested a 2-million barrel decline in the US inventories versus the expectation of a 400’000 barrel build. The more official EIA data is due today, and a surprise decline in inventories could invite the oil bulls back to the market at the current dip, as the trend in crude prices remains comfortably positive due to the supportive mix of rising post-pandemic demand and supply constraints.

Caution

Improved sentiment is put on the back of more optimism about reopening, meanwhile the hawkish Fed expectations and the rising yields continue being a serious threat to the actual gains, as the major triggers behind the latest bond selloff are still in play. This means that there is a high risk of a sudden mood swing before Thursday’s US inflation data.

On the index level, the S&P500 is stuck between its 100 and 200-DMA levels and Nasdaq remains below a major Fibonacci resistance near the 14850 level (38.2% retracement level on the latest November – January selloff), which should distinguish between the actual selloff and a medium-term bullish reversal. There is a thick layer of top-sellers within the 14800/15000 range.