US Inflation Expectations Cap S&P Rally

Global equities benchmarks are broadly rebounding against recent losses over the European morning on Tuesday. With most indices starting the week under selling pressure, Tuesday has seen a strong shift in tone, especially in the UK where the FTSE has climbed back into positive territory on the week in response to the UK PM’s “lockdown-exit roadmap” announced yesterday. Provided that health authorities’ tests are satisfied along the way, the UK will begin moving out of lockdown on arch 8th, due to have moved fully out of lockdown by June 21st, with three milestones of lockdown easing along the way such as the return of non-essential shops, the return of pubs and restaurants and the return of indoor gatherings. Though downside risks remain, the news has been cheered by UK investors for now.

In the US, equities are having a slightly rockier time. Rising US inflation expectations fuelled a big sell off in tech stocks yesterday which saw broader stock markets falling as US treasury yields continued to rise. Markets are now focusing on Fed chairman Powell’s testimony in the Senate, due later today and again tomorrow. With yields on the ten year note and 30-year note jumping by nearly half a percent each, taking them back up to pre-pandemic levels, traders are keen to see how the Fed chair will respond.

Technical Views


The DAX continues to range between support at the 13744.70 level and resistance at the 14128.76 level. Price has been held within this block of consolidation for most of 2021 so far though, in light of the longer term bull trend, the bias is for an eventual break higher.


The S&P is sitting back on the 3868.25 level which is holding as support for now. Though the long term trend remains bullish, the divergence in momentum studies suggests room for a deeper correction here. Should price slip back below the 3868.25 level, the next support is down at the 3714.50 zone with the rising trend line around that level also.


The FTSE continues to gravitate around the 6640.6 level. Following the correction back below the level last week, price rallied back above the level earlier in today’s session but has since met selling pressure. For now, the bias is towards a continued grind higher. Should price slip lower from here, the next level to watch is the 6396.4 level.


The Nikkei continues to correct within the broad bullish channel which has framed the rally off the 2020 lows. For now, price is sitting above the 29749.1 level, keeping the near-term focus on further upside. However, given the bearish divergence in momentum studies, we could see the correction run deeper towards the 29005.6 level next.

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