City A.M. TV: Daily Market Snapshot (video)
Reflation trades made new highs again yesterday across many parts of the global financial landscape. That’s most obvious in the US where the DJ Transportation index (+1.3 per cent) closed at a new high, while the S&P500 financial (+0.7 per cent) and airlines (+3.1 per cent) sectors both continued their recent strength.
In Europe, the German DAX and the broader Euro zone equity index pushed to new highs. With that, US bond yields remained elevated and the dollar strengthened further.
Typically a strong dollar signals risk aversion/risk off and a weak equity market. Recently, though, that relationship appears to have changed (with the S&P500 currently sitting at record highs). The dollar now, though, is notably overbought. How this relationship evolves, therefore, should be one of the key determinants of the outlook for the S&P500 and global equity markets (along with the message of our short term market timing models).
Key macro data out today includes eurozone inflation this morning (10am, flash estimate for March), as well as US pending home sales, Chicago PMI and ADP employment data (out this afternoon). Whilst those are all key data points, the ADP release is likely to be especially closely watched given the market’s debate about whether or not Friday’s payroll data will cross the million net new jobs mark.