The Overnight Report: Optimism Building

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By Rudi Filapek-Vandyck

Of course it's too early to declare a resounding victory, but analysts and economists on Wall Street are adopting the view that this week's CPI release is likely to surprise to the downside.

Growing inflation optimism is attracting more risk-taking in equities, with bond yields and the US dollar not spoiling the thesis.

Jerome Powell did his bit as well, mostly by not talking about the outlook for the US economy or Fed policy deliberations at a forum in Stockholm.

Fed Governor Michelle Bowman did reiterate the central bank is not done yet with curbing inflation, noting further tightening is needed. And JPMorgan's Jamie Dimon joined the chorus of expert voices expecting the Fed may have to hike rates further than the market is currently accounting for.

Elsewhere, Bank of America reported its clients sold -US$1.4bn in US stocks in the biggest weekly outflow since November. The firm’s strategists explained all three client groups of hedge funds, retail and institutional investors were net sellers.

On Friday, reporting season starts in the US and analysts have been frantically downgrading their forecasts in advance. On analysis published by Goldman Sachs, changes made are the worst on record since 1998, outside of the 2008 global GFC recession and the 2020 global pandemic.

The global investment manager index by Standard & Poor's suggests market sentiment remains negative with investors optimistic about financial markets further out this year, led by Asia. Healthcare stocks are everybody's favourite in the US, while real estate is least favoured and sentiment towards technology companies has hit a survey low.

All in all, the survey suggests investors expect equities to be outperformed by sovereign debt, commodities and corporate debt by the finish of the calendar year.

SPI futures this morning suggest Wall Street optimism is feeding into further gains for local equities.

The Australian share market over the past thirty days…

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