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Federal Reserve’s (Fed) Christopher Waller gave a C+ to the latest US inflation data, saying that it’s ‘far from failing but it’s not stellar’. Equity investors, however, continue giving the US stock indices a big, fat A+ on robust earnings, yes, but also on hope that the Fed could cut rates one, or two times this year, although there is not much conviction regarding the feasibility of the latter policy easing given that the first three months of the year warned that inflation’s path toward the Fed’s 2% will be all but smooth. So the risks prevail, but the FOMO – the fear of missing out – keeps equity bulls running. The S&P500 and Nasdaq, they both closed yesterday at a record high.

But note that the same ‘good but not stellar’ came from the UK inflation report this morning. Inflation in Britain fell, but fell less than expected by analysts. Inflation in Canada, on the other hand, fell more than expected in April and core inflation eased to 1.6% fueling the expectations that the Bank of Canada (BoC) could also overtake the Fed and cut the rates before the Fed. On the flip side of the world, the Reserve Bank of New Zealand (RBNZ) maintained its policy rate unchanged at 5.5% for the seventh consecutive meeting pointing at still-high inflation.

Today is probably the most important and certainly the most-awaited day of the earnings season as Nvidia is due to reveal its Q1 earnings after the bell. Option markets were pricing in a post-earnings move of more than 8% up or down for Nvidia at last week’s close, a move that could shake the S&P500 0.4% up or down according to Citigroup.

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The week kicked off with quite a solid appetite, especially for commodities. Gold and copper advanced to fresh record while silver soared past $32 for the first time in more than a decade. The gold-silver ratio, also called the mint ratio, tanked to the lowest levels since January 2022 as gains in silver outpaced gains in gold. Silver has room to gain against the yellow metal if the reflation narrative remains a major driver.

In energy, crude oil finds it hard to clear a major resistance near $80pb, while nat gas prices are finally picking up the momentum that many were waiting for, for months.

Of course, the commodity rally is also a boon for mining stocks, and the FTSE 100 has plenty of them in its pockets. The British blue-chip index is well positioned to benefit from the unfolding reflation narrative, especially if we see sterling retrace gains in the coming weeks – which I think is a growing possibility if tomorrow’s British inflation print satisfy the Bank of England (BoE) doves.

Elsewhere, Nasdaq 100 advanced to a fresh ATH, as Nvidia rallied 2.50% yesterday after Barclays lifted its price target from $850 to $1100 per share saying that it sees more revenue upside to current estimates. Nvidia will reveal its latest quarterly results tomorrow after the bell and can’t afford to drop the ball.

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Equity bulls around the globe celebrated in style the softer-than-expected US CPI data last week. The global equity rally was further juiced by the expectation that a softer inflation in the US would not only allow the Federal Reserve (Fed) to start cutting the rates this year, but also allow the other major central banks, like the European Central Bank (ECB) and the Bank of England (BoE), to carry on with their plans to cut their own rates and – maybe – cut more than people think they could.

Global stock indices refreshed record, treasuries gained and the USD fell.

This week, attention shifts to Canada, UK inflation updates, the RBNZ meeting, the FOMC minutes and Nvidia earnings.

Note that, the price-to-estimated earnings of the S&P500’s technology sector bounced above the 28 level, which has acted as an important resistance since 2020. Therefore, the current levels could well be appropriate for a correction. And a potential disappointment from Nvidia could pull that trigger... or not.

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All major US indices advanced to fresh ATH yesterday; the S&P500 and Nasdaq 100 traded at the uncharted territory, while the Dow Jones Industrial index hit the 40’000 mark for the first time. Data showed weakness in economic activity and jobless claims hinted at loosening jobs market (although the Federal Reserve (Fed) members called for patience before rate cuts.

In China, industrial production rose more than expected, and we discuss in this episode why Chinese growth is not good news for US inflation…

In the FX, the USD index rebounded against most majors, the EURUSD sold off from an early week peak.

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All’s well that ends well. US inflation came in line with expectations yesterday; core CPI fell for the first time in six months and the monthly CPI figure was a bit lower than expected. Cherry on top, retail sales stagnated in April and came to cement the idea that the US economy could be finally slowing. The combination of slowing growth and softer inflation is a godsend for equity markets who needed this boost; there is nothing more appetizing for investors than the smell of lower future rates. The US yields fell, equities rallied and the USD depreciated.

While the dollar’s depreciation is more than welcome for the other central banks – because it reinforced the rate cut expectations there, as well – the rally in major currencies could remain limited against the US dollar given the Fed members’ cautious approach to the rate cuts before they are sure inflation is on a solid path to their 2% target.

In metals and commodities, yesterday’s satisfactory US inflation data keeps the perspective of major central bank rate cuts wide-open and supports the continuation of the reflation trade that’s supportive of oil and copper.

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Yesterday was one of those days when investors insisted on seeing a glass that was one-tenth full as completely full.

The US producer price data came in higher than expected. US President Joe Biden announced eye-watering tariffs on Chinese imports – that’s inflationary – and the Federal Reserve (Fed) President Jerome Powell called for patience, again yesterday, and said that they did not expect the inflation battle ‘to be a smooth road’ but that the numbers ‘were higher than anybody expected’, and that it will probably take them ‘longer… to become confident that inflation is coming down to 2%’. Indeed, Biden is throwing a wrench in the works of the Fed with his China trade policy.

Overall, the inflation, Fed and China news weren’t supportive. But the market was quick to shrug off the bad news because some components of the PPI number that feed into the PCE – the Fed’s favourite gauge of inflation that’s due later in the month – were more muted.

All eyes are on the US CPI update today. Both headline and core inflation are expected to have moderated last month. If that’s the case, the risk rally will likely continue. And if it’s not the case, the risk rally could continue, as well. Until when? Until it doesn’t.

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The major story of Monday was a renewed rally in Gamestop and AMC shares after Keith Gill, aka, Roaring Kitty, posted on X for the first time since 2021. The moves revived the 2021’s meme nostalgia, but the meme stocks will unlikely see their original glory.

Overall, the major indices in Europe and the US across traded rangebound near their ATH levels and the US dollar index fluctuated a touch above the 105 level ahead of the US and European inflation updates that will start flowing in today.

This week’s inflation updates should maintain the ‘diverging inflation dynamics’ narrative live, but how long?

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The FTSE 100 and the Stoxx 600 index closed at a fresh ATH on the back of rising dovish central bank expectations. The EURUSD bounced lower from the 50 and 200-DMA, while Cable tested its own 200-DMA to the upside on the back of strong GDP read, but the currency pairs need good news from the US inflation front to clear key resistances this week.

Happily, the crude oil chart gives some hope regarding the energy inflation. The barrel of US crude fell 1.75% on Friday and slipped below the 100-DMA. The price of a barrel has been unable to make a move above the all-important $80pb level since it fell below this level at the start of May. Yet the geopolitical tensions remain high.

China, on the other hand, continues to struggle with its own demons. Released during the weekend, the data showed that CPI rose, PPI contracted and the aggregate financing in China fell for the first time in history on the back of slower government bond issuance and a decline in shadow banking.

Elsewhere, the earnings calendar is busy with US big retailer earnings this week. The Chinese Alibaba will also report earnings, OpenAI is expected to announce some updates this Monday and Alphabet’s Google hosts its annual developer conference this week, which could bring plenty of AI news on the headlines.

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The title of yesterday’s report was: will the Bank of England (BoE) cut? And the answer is yes, it is planning to cut its rates soon. This – expected and concretized dovish shift – was the major takeaway from the BoE’s latest MPC meeting that took place yesterday.

As a result, the FTSE 100 rallied to a fresh record yesterday and Cable sold off as a kneejerk reaction to the dovish shift in the BoE’s outlook, but rebounded strongly after the weekly jobless claims data from the US came in much stronger than expected.

Elsewhere, the S&P500 rallied yesterday and closed from a spitting distance from an ATH level because the stronger-than-expected weekly jobless claims suggested a tighter labour market and an economic slowdown that could bring the Fed to cut rates if inflation eases. And if inflation eases not, well, it is still interpreted as a good news, because then, the demand is strong enough to push prices higher. Yes, equities are winners in both cases. But there is also the stagflation scenario - where the Fed will have no option but to keep rates at higher levels for a longer period of time, praying that the inflation fever will eventually break. And that – stagflation – is the major risk to the US equity rally ahead of next week’s US inflation update.

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