US equities recovered Wednesday, snapping an untimely case of an uncontrollable run of two-day hic-ups as investors quickly digested the primary culprit: a toxic elixir of two parts technical and one-part Covid heebie-jeebies without too much unease.
Spooky events will happen from time to time, but provided the macros hold up and the Fed continues to toggle the policy taps wide open, it's unlikely the market will shift too far from the recovery reality. But the constantly shifting tides always complicate the narrative as a rising tide doesn't necessarily lift all boats.
Still, a few onboard signs started flashing after 20y bond yield auctions drew a considerable crowd, showing solid demand for long-end Treasuries and continued to dampen yields favourably for risk assets like stocks.
To be sure, the third wave of coronavirus infections is cause for concern for investors are suggesting discretion is the better part of valour when it comes to navigating this market.
But after a reasonably orderly sell-off with the VIX hardly blinking an eye, investors seemed happy to buy the dip. One reason why there’s been little nervousness might be that the market is better hedged than just a couple of weeks ago. I think everyone saw this coming as the market felt technically out of sorts with both bonds and stocks rallying on solid data; typically, something has to give.
US crude inventories built by 0.6mb last week, broadly in line with seasonal norms, but a negative surprise nonetheless. And then oil traded lower astern of the latest US oil products report as an untimely stock build of 3mb on the week, with most of the increase occurring in 'other oils' and jet fuel, clouded the immediate term view.
Refining runs fell below 15mbd last week to 14.8mbd, but given the strength in US refining margins and seasonal tailwinds we should expect them to bounce back over the coming weeks.
And with the NOPEC back in the headlines, it creates a lot of noise in the background, complicating the sense of unease around third wave of Covid-19.
Last night’s Bank of Canada meeting lived up to its billing as the most hotly anticipated central bank gathering of the year so far as the BoC has taken the lead on the race to policy normalization, with predictable consequences for the Loonie after BoC Governor Tiff Macklem opened the door to a rate hike in 2022. But the bigger hawkish surprise is the signal on rates and the positive CAD reaction to the BoC announcement appears well justified.
The MYR remains relatively tight, weighed down by slumping oil prices but supported by better risk sentiment and a slightly weaker US dollar this morning.
Gold remains supported by softer US yields, and the yellow metal hasn’t looked back since China increased import quotas for domestic banks, which is expected to result in 5 mm troy oz of imports over April and May.
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