US Open Note – Stocks consolidate at highs, gold adopts negative trajectory

Stocks composed and dollar strengthens heading for US inflation data

Stocks are suspended around their highs as market jitters are apparent as we near the release of the upcoming US inflation figures. Treasury yields and inflation remain some of the key drivers for market sentiment and in diagnosing the recovery pace. Improving yields and their bolstering effect on the greenback could be enhanced should the US Consumer Price Index (CPI) for March - due to be released at 13:30 GMT - beat forecasts of 2.5% y/y for the headline CPI figure.

The inflation event remains the highlight of the day and the numbers are expected to over deliver. In the event that last week’s ISM non-manufacturing PMI and Producer Price Index (PPI) transfer into the inflation data today, it is clear that an increase in the figures is more likely.

This could bolster the dollar index’s latest pickup to 92.25, steering it to the 92.40-92.50 region, after its surrender from Asian-session gains. Gold‘s outlook is deteriorating as rising yields return to the picture, weighing further on the commodity’s recent attempts to extend upside momentum. The yellow metal is currently falling and is approaching today’s low of $1,723/oz. The improving inflation picture means the recovery has taken another step in the right direction and this may spill over to gold, causing some damage to the safe haven.

Moreover, this optimism in favour of the US economy, rising yields and the fiscal stimulus in the pipeline could lift stocks. Nonetheless, investors need to keep in mind that the Fed reiterated that they will not react to short-term inflation, unless the ensuing bond sell-off clearly starts to hamper market functionality. Thus, if inflation were to become a destabilizing factor to markets as we move further into the year, this may heighten expectations of the narrative that the Fed will need to act with a monetary policy shift to counter the continual rise in inflation.

The euro steadied just under the $1.1900 mark, while the sterling slipped 50 pips to $1.3717. The yen improved with dollar strength and the swissie remained largely unchanged.

The antipodean currencies lost their shine as the dollar took full control and is steering the aussie to $0.7586 and the kiwi to $0.7000.

The old bloc lags and the Brits push on

In Europe, coronavirus infections continue to escalate, which could see more lockdowns return to the scene.  In Germany, on top of the issues around the virus, a new obstacle is emerging where Chancellor Angela Merkel’s political party remains divided over which candidate to select as her successor for September’s elections.

While across the channel, the UK remains steady on course with immunizations. Also, its production and construction output data released earlier today beat estimates, offsetting the relatively small misses in GDP and trade numbers - especially after the recent trade issues with the European Union.

Oil remains subdued

WTI oil futures remain relatively neutral around the $60.00 per barrel mark. Delayed vaccine rollouts and thus reopening timelines may further extend the dull picture for oil as lower demand expectations persist. The Canadian dollar weakened versus the dollar hitting a high of C$1.2620 per dollar.

Upcoming is the US 30-y Bond Auction at 18:00 GMT. At 20:15 GMT, FOMC Member Bostic is scheduled to speak.

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