I am publishing this post as of 12 May 2021. I wanted to publish it two days ago before yesterday's correction over the major DM indexes, but I have been quite busy lately. Despite yesterday's sell off my ideas remain the same but while reading it please keep this in mind.

Overview

The market begins to take inflation related topics seriously. There is growing evidence that supply remains a problem for many companies, just as demand is peaking up - particularly acute on materials and components. Some peculiar trends are starting to be visible. Commodities indices, perhaps a direct inflation hedge, are approaching 2011 highs. Within equities, investors are moving flows to value and short low volatility style. Growth and quality are under-performing given their historical negative correlation to inflation.

Friday's very disappointing US employment report suggests labor availability may be a gating factor on the speed of the reopening and thus it may delay the FED's tapering maneuver. Given the current numbers, tapering will likely not begin before January 2022.

We are leaving the early stage of the recovery on our back and entering a "mid-cycle transition".

Equity

Euro Stoxx 50 continues a lateral correction making you wonder if we will soon see a "real correction" - 5 to 8%. For the moment I stay cautious preferring defensive stocks.

Nasdaq 100 witnessed a stronger correction in April and I expect the correction to continue its course. At the moment I stay away from tech stocks.

SPX is currently trading at its maximum but it is not overbought (daily chart) yet. I find it more difficult everyday to spot opportunities in terms of price in the US market and that itself doesn't smell good. In any case this condition may persist for months.

Forex

EURUSD is now trading at 1.2150 after the disappointing employement figures the USD has loosen ground but from this level may now continue its downward trend that charactherized Q1 2021.

Fixed Income

Following a spike in late April, 10yr US treasury yield pulled back on 1.55 continuing its lateral movement. Given tapering may take place only from January 2022 and the inflation effects take time to show, I do not expect sharp movements on this end.

Oil

BRENT is yet trading at 70$/bbl but it clearly show a strong upward trend. I believe it may continue its bullish trend amid rising traveling and holidays demand.

Sector

I stay positive on financials since Inflation expectations will likely pull the yield curve higher and steeper, such that bull case is not solely predicated on buybacks. Other than that I still bend toward consumer staples and on the upper area of the quality curve.