SP500 - Focus on US inflation

TRUMP_US

The US will withdraw from the Iran nuclear deal and reinstate sanctions, which adds another level of geopolitical uncertainty. Oil prices could continue to be supported higher and potentially exert pressure on inflation, which would be negative for equity markets globally.

For now the effect on equity markets is fairly muted, as the news was largely anticipated. Whether higher oil price translates into inflation remains to be seen. We will get some colour on that today with PPI, and especially tomorrow with Core CPI figures.

US markets initiated a strong rebound since last Friday’s job report, which showed average wages growing less than anticipated. A confirmation of a tempered inflation today and tomorrow would probably extend this rebound.

The SP 500 will re-test the 2683 resistance with good chances of breaking it, opening the way for an April high at 2717 and March high at 2800.  Nevertheless, volatility should remain elevated on US equities with quite a number of worries lingering: higher oil price, stronger dollar, trade and geopolitical tensions, and entering a seasonally weak period. Investors’ mood has also clearly deteriorated from ‘fear of missing out/buy the dips’ to ‘search for value/sell rallies’.

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