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MORNING BID-Dreaming of a Goldilocks recovery

A look at the day ahead from Julien Ponthus.

Yesterday’s rally on Wall Street might have felt like vindication for any strategists arguing that rising Treasury yields are no threat to stock markets, as long as the upward trajectory is orderly and in line with economic recovery.

Not too hot, not too cold, such a Goldilocks recovery would help corporate earnings back to pre-COVID 19 levels while keeping inflation in check.

Focus then is on bond yields; 10-year U.S. borrowing costs , up more than 60 basis points this year, slipped to 1.537% after Tuesday’s sale of 3-year notes went off well. All eyes now on Wednesday’s 10-debt sale -- it was a weak 7-year auction on Feb 25 that sent yields 20 bps higher, with spillover into equity markets.

Inflation fears are creeping up in the background too with growth forecast upgrades and the passage of the $1.9 trillion U.S. stimulus package. So U.S. CPI data due 1330 GMT is another data point to watch.

And data today showed China’s factory gate prices rising at their fastest pace since November 2018 in February, raising expectations for robust growth.

On the Goldilocks front, it certainly felt that way in Europe the past couple of days; cyclical shares benefited from the reflation trade while tech was turbocharged on Tuesday by the Nasdaq’s 4% rebound. Futures indicate a bit of pullback today however, in Europe as well as New York.

Finally, the dollar continues to make headway against other currencies while bitcoin turned lower after earlier topping $55,000 for the first time since Feb. 22.

Key developments that should provide more direction to markets on Wednesday:

Kazakhstan central bank meets 0900 GMT

Bank of Canada meeting 1500 GMT

Croatia central bank meets

German 10-yr Bund auction

US Treasury 10-year auction

US Feb CPI

US corps: Tupperware, Campbell soups

Europe corps: Adidas expects strong rebound, Inditex’s 2020 net profit falls 70%

Reporting by Julien Ponthus

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