Read the 10 stories to remember from the week which ended April 23rd, 2021.
Story #1: Up-and-down week amid light volume.
The week was volatile but US stocks finished little changed amid some of the lightest daily trading volumes of 2021. Small-caps slightly outperformed large-caps while the Nasdaq modestly lagged the broad market. Semiconductor stocks were notably weak.
Story #2: The tax fear.
Stocks were hammered on Thursday on news headlines that President Biden plans to propose nearly doubling the long-term capital gains tax rate for taxpayers who earn more than USD 1 million a year. The tax hike would be used to fund some of the measures in Biden’s American Families Plan, which could be formally proposed next week. Stocks recovered some of their intraday losses as investors seemed to realize that negotiations in Congress would likely make any final tax increase lower than what Biden initially proposes.
Story #3: Quarterly earnings season dominated by re-opening theme.
The week’s earnings reports provided more evidence that the economy is gradually transitioning to a post-pandemic environment. Netflix reported that its number of new subscribers declined steeply in the first quarter and said that it expects to add even fewer subscribers in the second quarter as consumers spend less time at home. Major airlines, including United, American, and Southwest, posted another quarter of weak earnings but said that they are seeing a meaningful pickup in travel demand as more people are vaccinated and become comfortable traveling. S&P 500 GAAP Earnings are projected to have hit a new high in Q1, surpassing the prior high from Q3 2018. Profit margins have surged above pre-covid levels, not far from record highs.
Story #4: Strong macro number
Initial unemployment claims fell to the lowest level since the onset of the pandemic in March 2020. The report showed that the labor market is continuing to improve, although weekly jobless claims remain well above pre-pandemic averages. Existing home sales fell 3.7% in March from February amid a limited supply of houses on the market. The limited supply and strong demand pushed the median sales price to a record high in March.
Story #5: Treasury yields decreased slightly; Core eurozone bonds flat.
U.S. Treasury yields modestly decreased as the Biden capital gains tax increase news supported demand for less risky assets, according to T. Rowe Price traders. The broad municipal debt market gained but lagged Treasuries. Continued cash flows into municipal bond funds industrywide helped demand keep pace with an increase in new municipal issuance. Core eurozone bond yields ended the week roughly flat. Optimism about the vaccine rollout drove yields higher early in the week. This move reversed, however, after the ECB said it was too early to withdraw stimulus.
Story #5: European equities on Covid concerns.
Shares in Europe slipped on concerns that a rising coronavirus cases could slow the pace of the economic recovery. These fears overshadowed strong corporate earnings. The pan-European STOXX Europe 600 Index ended the week 0.78% lower. In Germany, Parliament passed a controversial law that would allow the German government to impose strict lockdown restrictions, such as overnight curfews and school closures, wherever coronavirus infection rates rise to dangerous levels.
Story #6: Eurozone PMI stronger than expected; German deficit expected to balloon.
The IHS Markit flash composite PMI for the eurozone rose to a nine-month high of 53.7 in April, up from 53.2 in Marc. This uptick defied analysts’ expectations for a slightly weaker result. Business activity in the manufacturing sector rose to a record high, and the services portion of the economy unexpectedly returned to growth, despite the introduction of new restrictions aiming to curb the coronavirus’ spread. Germany’s Finance Ministry forecast that the public sector deficit would expand to about 9% of GDP in 2021—compared with 4.2% last year—as the country increases spending to counter the economic damage caused by the coronavirus pandemic.
Story #7: ECB to keep rates unchanged.
As expected, the ECB kept its main policy measures unchanged and restated its determination to keep borrowing costs low, saying it would maintain its recently increased pace of bond purchases until the eurozone’s economy is firmly on the path to recovery. “The governing council expects purchases under the PEPP [Pandemic Emergency Purchase Programme] over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year,” Lagarde said.
Story #8: China
In China, the large-cap CSI 300 Index advanced 3.4% for the week. Chinese stocks rose steadily since Monday, when mainland equity markets received USD 2.5 billion inflows from Hong Kong via Stock Connect, marking the third-largest single-day inflow from Hong Kong investors. The People’s Bank of China left the loan prime rate (LPR), a reference rate for new bank loans, on hold for the 12th straight month. Chinese Internet & Tech stocks recorded strong gains as new rules from China’s financial regulators appear to have lifted investor sentiment. After the market close the previous Friday, April 16, the China Securities Regulatory Commission (CSRC) announced a number of new market reforms, including a pledge to curb the “unregulated” expansion of fintech firms.
Story #9: “Crypto” carnage
Bitcoin breached a key technical level on Friday, sliding below its 100-day moving average of $49,497. The number one cryptocurrency broke the key $50k level and dropped below the $1 trillion market capitalization level. Lack of institutional demand, the tax fear, the sudden freeze of a $2bn crypto exchange in Turkey and key technical considerations were pointed out as the main reasons behind the sell-off. Other cryptocurrencies also fell apart, although we not that Ethereum has been sharply outperforming bitcoin recently. Earlier in the week, meme crypto Dogecoin had an incredible run before dropping by 50% during the second part of the week.
Story #10: Dollar down, Precious metals up
Gold managed bouncing $120 an ounce from "panic" lows a few weeks ago. Silver recovered as well while Palladium hits new record high. The dollar index was weak as the Euro strengthened around the ECB meeting while Bank of Canada decision to “taper” quantitative easing (the first developed markets central bank to do so at this stage of the cycle) pushed the “loonie” higher. Chinese Yuan was firm as well. The “Tax fear” didn’t help the dollar sentiment either.
Source: www.zerohedge.com, T Rowe Price, Investopeia
