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The Tuesday Market Minute

  • Global stocks edge higher in low volume ahead of a key reading of March inflation that could begin a run of readings that challenge the Federal Reserve’s interest rate consensus.
  • March CPI is expected to rise to 2.5%, with further pandemic-affected increases in the months ahead, as trillions in stimulus and myriad Fed supports buttress consumer spending and corporate pricing power. 
  • Retail sales figures on Thursday will offer another significant signal for near-term growth prospects, while JPMorgan earnings Wednesday will unofficially kick-off the first quarter earnings season.
  • Benchmark 10-year note yields rise to 1.691% ahead of March inflation data following a mixed $38 year 10-year auction on Monday.
  • CDC data shows 74.1 million Americans have now been fully vaccinated against the coronavirus, with around 189.6 million doses administered as of Sunday.
  • U.S. equity futures suggest a flat open on Wall Street ahead of March inflation data at 8:30 am Eastern time.

U.S. equity futures traded mixed Tuesday, while Treasury bond yields and the dollar edged higher, as markets braced for a key reading of March inflation that could mark a series of pandemic-effected data releases that challenge the Federal Reserve’s interest rate consensus. 

Headline consumer prices are expected to have risen 2.5% last month, economists forecast, a big jump from the 1.7% rate recorded in February and the start of a series of readings that will show inflation running well ahead of the Fed’s 2% target. 

However, while investors clearly understand that the fastest readings are the result of comparisons that came amid the worst of last year’s pandemic, and Fed officials have been consistent in their messaging that the gains will be temporary — and won’t induce rate hikes — market reaction to a higher-than-expected reading is almost assured.

Data from China today showing March exports rose 30% last year, coupled with last week’s reading of factory gate inflation that rose to a three year high of 4.4%, added further evidence to the case for higher end prices in the U.S. over the coming months.

That’s keeping Wall Street on edge Tuesday as benchmark 10-year note yields climb to 1.691% from yesterday’s $38 billion re-opening auction and the highest readings of market-based inflation expectations in nearly a decade.

Futures contracts tied to the Dow Jones Industrial Average suggest a modest 35 point gain, while those linked to the S&P 500 are priced for a 2.5 bump from last night’s close of 4,127.99 points.

Nasdaq Composite futures, the most sensitive to interest rate moves, are indicating a 10 point pullback at the start of trading.

Investors are also reluctant to extend risk ahead of the unofficial start of the first quarter earnings season tomorrow, with Refinitiv forecasts indicating S&P 500 profits will rise 25% last year to a share-weighted $338.3 billion.

JPMorgan  (JPM) – Get Report kicks things off Wednesday, followed by updates from Wall Street rivals Citigroup  (C) – Get Report, Goldman Sachs  (GS) – Get Report, Morgan Stanley  (MS) – Get Report, Wells Fargo  (WFC) – Get Report and Bank of America  (BAC) – Get Report before the end of the week.

In Europe, a weaker-than-expected reading of investor sentiment from Germany, the region’s largest economy, offered a reminder of the Continent’s lagging position in terms of exiting the pandemic, although the Stoxx 600 managed to build a 0.25% gain in the opening hours of trading, 

Overnight in Asia, the solid but not spectacular China export data gave regional markets a boost, but escalating military tensions between Beijing and Taiwan kept markets in check, with the region-wide MSCI ex-Japan benchmark rising 0.1% on the session.

Japan’s Nikkei 225, meanwhile, used a softer yen to book a 0.72% gain heading into its corporate earnings season, pegging the benchmark at 29,751.61.

In global oil markets, China’s 21% March jump in crude exports kept prices in the black, although today’s API reading of domestic stockpiles, and tomorrow’s Energy Department report, could show further increases that raise more questions about the pace of near-term growth.

WTI futures contracts for May were marked 35 cents higher at $60.05 per barrel while Brent contracts for June added 46 cents to trade at $63.76 per barrel.