US equity futures are struggling for direction this morning after a late tech selloff yesterday sent the Nasdaq lower for a fourth consecutive session. But the Dow Jones Industrial Average managed to advance to a new record high with the support of cyclical industries. European markets are also set for a subdued open following a mixed Asia session which saw Japanese stocks outperforming on their return from holiday, while shares in China and Australia dropped after Beijing announced a suspension of regular economic dialogue with Canberra.

US bond yields are back under pressure with 10-year yields falling for a fifth straight day, preventing the dollar from further rallies. Meanwhile in commodities, Brent is still attempting to break above $70 a barrel as crude stockpiles in the US fell more sharply than anticipated.

Key trends for equity investors haven’t changed a lot so far this year. Value and cyclical stocks remain the main beneficiaries from the reopening of economies, while growth and tech firms with overstretched valuations continue to suffer. In an expensive equity market and with anticipation of higher interest rates, value tends to benefit the most and investors are sticking to this narrative.

Surprisingly though, the bond market is still doing holding up despite all sorts of talk about an overheating economy and soaring inflation expectations. The 10-year breakeven inflation rate which measures expected inflation over the next 10 years reached 2.47% on Wednesday, the highest in eight years. Meanwhile five year breakeven rates approached 2.7%, the highest in a decade.

If Friday’s US jobs report comes out strong enough to force the Federal Reserve to announce tapering of asset purchases later this year, we could see the upward trajectory in long term bond yields resume after its latest pause. However, looking at recent economic data releases, it seems the economy is failing to surprise to the upside.

The employment component of the US PMI Manufacturing and Services indices both came in slightly above market expectations this week. Private payrolls rose by 742,000 jobs in April posting its biggest gain in seven months but still fell short of the 800,000 forecast. Today’s initial jobless claims will also provide more information about the recovery in the labour market. But it is Friday’s non-farm payrolls report that will determine how bond yields could move and possibly take the dollar in the same direction.

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