Read the 10 stories to remember from the week which ended April, 9th 2021.
Story #1: US stocks hit new highs on strong data.
Most of the major US equity indices moved steadily higher to record highs although volume dropped meaningfully – creating a negative divergence. The small-cap Russell 2000 Index recorded a modest loss. Meanwhile, the technology-heavy Nasdaq Composite Index outperformed the broad market S&P 500 Index but stayed below its February peak. After 6 weeks of relative underperformance, growth is up for the second straight week against value thanks helped by solid gains in Apple and Microsoft. This was the biggest 2-week spike in growth over value since August. Casino and cruise line shares were also especially strong, while energy stocks lagged as oil prices pulled back early in the week.
Story #2: US and China Economic data surprised on the upside.
Trading got off to a strong start thanks to the previous week’s monthly US payrolls data, which was released when the market was closed for the Good Friday holiday. US employers added 916,000 jobs in March, well above consensus estimates of around 650,000, and the most since last August. Much of the rest of the week’s economic data also surprised on the upside. The ISM gauge of service sector activity jumped to its highest level on record, mirroring the ISM’s earlier report that factory activity had reached its highest level in four decades. In China, the private Caixin Services PMI jumped to 54.3, its fastest expansion pace since December 2020 and reinforcing the strong official PMI readings at the end of March. The Caixin Services PMI also revealed that business expectations rose to the highest level since February 2011 while a services employment index rebounded after three monthly declines.
Story #3: Inflationary prints escalate.
If there was a worrisome element in this week data, it may have been reports of higher prices for production inputs. Indeed, US producer prices rose by 1% in March, roughly twice consensus estimates. The jump pushed the year-over-year increase to 4.2%, the largest in nearly a decade. Investors seemed to be keeping an eye on supply chain pressures, particularly delays at U.S. ports and the global semiconductor shortage, which has led to temporary shutdowns in automotive production lines. In China, the consumer price index (CPI) rose to a five-month high in March, while the producer price index (PPI) accelerated 4.4% year over year after rising 1.7% in February. The March PPI surge, its largest increase since July 2018, fuelled worries about global inflation, which appears to be on the rise as the pandemic recedes and economies recover.
Story #4: Biden infrastructure plan boosts growth hopes.
President Joe Biden’s announcement the previous week of a USD 2.25 trillion infrastructure plan also seemed to boost growth hopes. Prospects that the plan would actually become law seemed to increase following a procedural ruling that appeared to suggest it could be passed by Democrats on a party-line vote in the Senate. Investors may also have been encouraged that President Biden stated he was willing to negotiate how much corporate taxes would be raised to pay for the bill.
Story #5: Despite strong data and inflation fears, the Fed stays dovish.
Speaking Thursday before the International Monetary Fund (IMF), Fed Chair Jerome Powell stressed that the global economy would remain fragile until the pandemic is brought under firm control and that the U.S. recovery remained “uneven and incomplete.” The Federal Reserve’s commitment to continued low rates seemed to keep a lid on yields. The 10-year U.S. Treasury yield increased somewhat on Friday in response to the producer price inflation data but moved slightly lower for the week as a whole.
Story #6: French, German industrial output drops; UK construction activity surges.
Not all global economic data are strong. In continental Europe, Industrial production in Germany and France fell sequentially in February, raising concerns about the pace of economic growth. In France, total output fell 4.7%, while industrial production in Germany contracted 1.6%, according to official data. Things look better in the UK as construction activity last month grew at the fastest pace since September 2014, according to the IHS Markit/CIPS PMI index. This report and recent strong PMI surveys for services and manufacturing could suggest that the economy contracted at a slower pace in the first quarter. UK reopening continues; Prime Minister Boris Johnson said that England would move to the second phase of its “road map” for lifting the lockdown on April 12. He also announced a framework for the resumption of international travel, which could begin to take effect on May 17, at the earliest.
Story #7: European equities rose on stimulus hopes; Italian yields rose.
# Shares in Europe rose on growing hopes that injections of fiscal stimulus and dovish central bank policies would spur a global economic rebound. The pan-European STOXX Europe 600 Index ended the week 1.2% higher. The UK’s FTSE 100 Index advanced 2.65%, partly owing to a weaker UK pound, which fell on concerns about vaccine supply issues and profit taking after a strong quarter. Bond yields climbed after minutes from the ECB’s March meeting suggested it was willing to slow bond purchases once conditions become favorable.
Story #8: Chinese equities recorded another weekly loss
Stocks in China extended several weeks of underperformance against other major global markets. The large-cap CSI 300 Index fell 2.4% and the benchmark Shanghai Composite Index shed 1.0%. Data indicating higher inflation and elevated U.S.-Sino tensions weighed on sentiment and outweighed positive corporate earnings. According to Citi Research, about 67% of the 33 Chinese industrial companies it covers recorded earnings that either beat or met consensus forecasts, with about half of that number reporting better-than-expected earnings—far exceeding the typical one-third ratio, the bank noted.
Story #9: Mixed commodities prices as dollar continues to weaken.
The US dollar dropped for the second week in a row but bounced on Friday after the PPI print off the pre-FOMC plunge level. Gold managed gains on the week but was very volatile intraday. Oil had an ugly week, with WTI unable to hold above $60. This is the 4th down week of the last 5. A United Nations gauge of global food prices climbed for a 10th month in March, driven higher by costlier vegetable oils, meat and dairy. This the highest level since June 2014.
Story #10: Cryptocurrencies market cap at $2.1 trillion.
Bitcoin had a rollercoaster week but managed to end back to cross $60,000 on Saturday morning. We note that the correlation between gold and bitcoin has collapsed to a record low (negative) as it seems crypto is winning in the inflation hedge flows (for now). Ethereum was bid each time it dipped back below $2000 and was flirting with $2,200 on Saturday morning. Ripple had a huge week, up 100%. Binance Coin hit an all-time high ahead of Coinbase IPO.
Source: T Rowe Price, John Hancock, Image: Hedgeye.