The Bulls Have The Bit Between Their Teeth

WHERE WE STAND – The risk rally rolled on yesterday, as a benign CPI figure gave the green light for stocks to gain further ground, and as even more dip buyers emerged amid a FOMO-induced rush to join in with the equity market gains.

This all came as participants continued to digest the US-China trade truce and, while news flow on that front was considerably more subdued than a day prior, those stories we did hear – China lifting a ban on Boeing jet deliveries, and the US cutting the ‘de minimis’ tariff rate – reinforced the calmer, cooler, more conciliatory tone that begun over the weekend. All this adds further credence to the idea that we are passed the peak of trade uncertainty, and can put tit-for-tat tariff threats in the rear view mirror.

Add it all together, sprinkle on top apparent progress on the House GOP tax cuts bill, increasing faith that the debt ceiling will be resolved in timely fashion, and a mindset where (at least for now) investors will look through bad data as being skewed by tariffs that are no longer in place, and you have a very potent cocktail indeed to send stocks further higher. The 6,000 handle will be the first test for spoos, and fresh record highs certainly can’t be ruled out shortly after.

On the data, as mentioned, the latest US inflation figures were soft enough not to cause any particular concern yesterday, with headline prices rising 2.3% YoY in April, the slowest pace since February 2021, while core inflation held steady at 2.8% YoY. Digging into the figures, there was little sign of any tariff-induced price pressures emerging just yet, though it was noteworthy that core goods prices rose a modest 0.1% YoY, the first such rise since the start of last year.

Despite that, the figures certainly won’t be shifting the FOMC from their ‘wait and see’ stance any time soon, with Powell & Co set to remain on the sidelines for the foreseeable, continuing to assess how incoming economic data, and changes in trade policy, are shifting the balance of risks facing each side of the dual mandate. I still think that any Fed cuts before the end of Q3 are a very long shot indeed.

Any near-term action from the BoE seems a long shot too, despite a continued loosening in labour market conditions. Unemployment rose to 4.5% in the three months to March, nearly a 4-year high, while payrolled employment fell 33k in the month of April, the fifth fall in the last six months. Despite this, the MPC have decided to bury their heads in the sand, screaming about the need for ‘gradual and careful’ easing until they’re blue in the face.

That guidance seems to be on borrowed time and, even if a June cut is off the cards, with August the most likely time for another 25bp cut to be delivered. By then, though the Old Lady is likely to be so far behind the curve that they’ll barely be able to see it, resulting in an air of inevitability around the need for a faster cutting cycle, potentially in larger clips, at the end of summer.

LOOK AHEAD – Today’s docket is not only quiet, but is in fact completely devoid of any major data releases through either the European, or US trading sessions.

I wouldn’t worry about boredom, though. There should be plenty of geopolitical and trade headlines as President Trump continues his tour of the Middle East, while plenty of central bank speakers, including the Fed’s Jefferson, Waller and Daly, are due to pop up through the day.

The earnings slate also has a few firms of interest on it, namely Chinese tech giant Tencent before the open, along with fellow tech names Cisco and CoreWeave after the close.