Fed officials continue to extinguish the inflationary panic and help markets return to last year’s major trends. In particular, yesterday, we saw an acceleration in high-tech stocks and a simultaneous weakening of the dollar. Commodities and metals lagged in their momentum, but in our view, remain potentially attractive for the longer term.
Investors are selling off dollars and entering growth stocks, convinced that the recent spike in inflation will not lead to a tightening of monetary policy.
The Nasdaq100 index is up 1.8% for the day versus 1% for the S&P500 and 0.5% for the Dow Jones. Meanwhile, the year-to-date dynamics of the indices are reversed, with Nasdaq100, the laggard in this trio, adding only 7.5%, while S&P500 gained 13.4%, and Dow Jones is up 13.8%. The high-tech giants have more upside potential and may benefit from a short-term portfolio rebalancing.
Potentially, the political stance of “lower rates for the longer” is a breeding ground for demand for commodity assets. However, it is difficult for gold to gain new supporters at this stage. The reflex that market participants have developed in recent months suggests a moderate downturn in the price of the precious metal: If inflation is not a problem, insurance against it falls in price.
In addition, gold looks short-term overbought, having climbed above 70 in the RSI on the daily charts. In the near term, we might well see a consolidation near the current levels with the range of $1844 (200-day moving average) and $1900, an important round level, and the historical high area of 2011.
Looking beyond short-term fluctuations, it makes sense to remain bullish on commodity assets. The Fed’s reluctance to fight the first signs of inflation is fertile ground for higher prices.
The idea of a global minimum corporate tax is actively promoted, and politicians remain hopeful that a 15% minimum rate will be agreed upon in the coming weeks. If so, the profits of global corporations are in jeopardy. Most of these are high-tech companies. Broader implications of this are the risk for the so-called ‘Amazon effect’, where the digitalisation of business and logistics drives down the price of goods. The world could be deprived of an important deflationary driver, which would further boost inflation.
In addition to gold, oil is also worth watching: Brent is once again close to $68.50, an area of highs in the last two years. A move above $70 could see the bears submit, with the bulls gathering strength after a three-month consolidation to send the exchange rate into a new $70-80 trading range.
