S&P500 hits all-time peak; Euro calm after Spanish elections

Summary:

• US stocks hit new record highs

• Fed’s preferred inflation measure dips

• Target recovers after broker upgrade

• DE30: Bayer falls by 3%

• Euro stays calm after snap election in Spain

After a rip higher at the end of Friday’s session that saw the S&P500 close at a record high, US stocks have extended higher this afternoon, with the market moving above the intraday high of 2946.7 from September last year. As is often the case with stock market rallies there are numerous reasons why equities should be lower, but the most important takeaway for now is that they are not and in the absence of any reversal patterns or major negative catalysts the path of least resistance appears to the upside.

It’s a busy week on the economic calendar with Wednesday’s Fed meeting and Friday’s NFPs the two standout events, but the PMI data from both the US and China shouldn’t be overlooked in terms of their importance - the first of two Chinese PMIs in the coming days will be released overnight. Before that however, this afternoon we’ve had the latest look at price pressures with the Fed’s preferred inflation measure coming in lower than forecast. For March the core PCE Y/Y fell to +1.6% compared to +1.7% expected, down from the prior month’s reading of +1.7% - a reading that itself was revised lower from 1.8%. This data supports Friday’s GDP release in suggesting that price pressures in the US are waning slightly and there’s very little in them that would weigh on the mind of rate-setters in terms of forcing them to consider raising rates when the Fed begin their 2-day meeting tomorrow.

As far as shares go, Target had a bright start on the open, with the beginning almost 3% higher after a broker upgrade. An analyst at Barclays upgraded the stock to “overweight” from “equal weight” noting that the company leads Amazon in same-day deliveries and “has built a supply chain that fulfills e-commerce primarily from stores (where next-day delivery is much easier), which stands in a stark contrast to most retailers.” The comments will be warmly welcomed by investors after Friday’s trade saw the stock tumble after news broke that Amazon was planning to reduce delivery times for top customers to one day from two.  

On the Dax, Bayer (BAY.DE) is trading roughly 3% down after shareholders said they wanted the company to take a more proactive approach in dealing with the US litigation and to consider an overhaul of the board. On top of that, investors want Bayer to conduct a comprehensive review as some of them think that a potential breakup of the company into crop science and pharmaceutical companies may be needed. We have yet to be offered a comment from the company on investors’ call for these changes. Let us remind that Bayer has faced as many as 13 400 lawsuits claiming that a weedkiller called Roundup causes cancer.

The snap general elections in Spain took place on Sunday. After counting as many as 99% of votes one may conclude that the event brought no surprises. The Socialist Party (PSOE) of the incumbent Prime Minister Pedro Sanchez won the elections reaching 28.7% of votes (123 seats). This result is a substantial improvement compared to the last elections in June 2016 where the PSOE got 85 seats in the Congress of Deputies. After breaking below 1.12 the EURUSD is subtly recovering today. Nevertheless, the Spanish elections’ outcome had a negligible impact on the common currency. Technically the pair could be in a position to experience some rises as it is trading close to the lower bound of the bearish channel.