- Sentiment downbeat after Tuesday’s sell-off
- Chinese and US equities have already decoupled, may point to bear trend ahead
- Crude oil key barometer for risk appetite
- UK CPI misses expectations but inflationary pressures building
- Bank of Canada and crude oil inventories among key macro events later
Global shares, crude oil and commodity dollars all slumped on Tuesday. Today, the focus will be on whether we will see some real follow-through on the downside or will investors once again buy the latest dip in stocks (and other risk assets). European indices bounced off their lows first thing this morning after a calmer session overnight in Asia, but it remains to be seen whether the bulls will hold onto their ground after what was a technically-damaging sell-off for the major indices yesterday. So, rallies into old support levels may get sold today.
Sentiment was hurt pre-dominantly due to renewed worries over rising global Covid infections which could slow down the reopening of some economies. In the case of US stocks, there was also an element of profit-taking after the major indices had reached or neared record levels with the earnings season in full swing now.
Another source of worry for investors is the potential reduction or withdrawal of monetary support from the Fed and other major central banks when lockdown measures are eased further and more people are vaccinated against Covid-19.
In China, equities have been falling sharply in recent weeks as worries over policy tightening persists. This is due to the release of upbeat economic data and worries of inflation overshooting. If the Chinese equity markets are anything to go by then the outlook doesn’t look too good for European and especially US equities, where valuations are already sky-high.
So far, the Fed hasn’t signalled its intention to tighten its belt but may do so if incoming data continue to beat expectations.
Crude oil key barometer for risk appetite
Keep an oil on crude oil because of the situation in India, the world’s third largest crude consumer of oil and where Covid deaths have hit new daily record amid an upsurge in virus cases. Renewed worries over demand saw prices reverse on Tuesday, and more losses could be on the way if the situation in India deteriorates. Meanwhile, the American Petroleum Institute (API) reported U.S. crude supplies rose by 436,000 barrels for the week ended April 16. If confirmed by official data from the Energy Information Administration later, this could push oil prices lower given that prior expectations were for crude inventories to drop by 4.4 million barrels. 
U.K. inflation a touch softer than expected
U.K. Inflation inched higher in March as fuel and clothing prices rose. CPI inflation climbed 0.7% higher, but economists had predicted a 0.8% increase. Still, with monthly producer input (1.3%) and output (0.5%) prices both rising above expectations, inflationary pressures are building up in the economy and may passed onto consumers. This comes after mixed-bag U.K. wages and employment data on Tuesday caused the pound to retreat from the $1.40 handle, with the greenback finding support across the FX board on haven flows after the equity markets slumped. Several Bank of England policy members, including governor Bailey, will be speaking today – watch out for comments about the future path of monetary policy.
Coming up later today
- Bank of Canada policy decision and press conference, as well as speech by BoE Governor Bailey
- Data: CPI from Canada and US crude oil inventories
The focus will also turn to American company earnings after Netflix saw shares slump in the aftermath of its results last night. Netflix provided forecast-beating sales and profit, but it warned investors of a dramatic slowdown in subscriptions growth, which caused shares to drop 10% in after-hours trading.
Today’s reporters in the US include Verizon Communications.
Meanwhile Juventus shares plunged 10% as the proposed European Super League effectively collapsed as all 6 English teams backed out. Manchester United shares also fell. More clubs are reported to announce that they will pull out of the ESL, including Inter Milan.
