In a shortened Easter week, the S&P500 and DJI closed the month of March and the first quarter near all-time highs, setting up continuation in April, the most bullish month of all for the S&P500 which duly ramped through 4000 on the first of the month. Yields continued higher with the 10Y making a new high of 1.77% proving yet again that a yield rally under the right conditions is bullish for the stock markets. Even the weakened Nasdaq and high growth names put in a strong reversal higher with Tesla making a 17% gain in 3 sessions.
It was a slow news week, with the highlight, NFP, coming after the markets closed for the Easter break. An inflation beat in the Eurozone did little to lift the Euro which slid to 1.17 against the USD. The OPEC+ meeting finally saw the group decide to curb cuts, but only gradually with 350k bbd coming back on line in May. Oil stayed steady all week even with President Biden’s $2.3trn infrastructure plan focusing on clean energy and electric vehicles.
Next week sees President Biden’s infrastructure bill go to Congress. This bill could add up to 1% to the current 5.2% GDP estimate, and the benefits would largely flow to industrials, possibly increasing the rotation out of tech we have seen recently.
However, the bill also includes the restoration of the 28% corporation tax rate, reversing Trump’s 7% cut in 2017. This translates to an approximate 7.4% hit on SPX earnings (a 280 point drop), but have less effect on tech. Note that corporate earnings are expected to increase by 24.2% from their position a year ago. Remember EMH would suggest all this is priced in. SPX is currently 19% ahead of its pre-pandemic high in Feb 2020. NDX is 38.3% higher.
Note of course that although Congress is all blue, it would only take one Democrat to stall the tax hikes in the Senate. The degree of debate may of course take us into the following week’s earnings season opening, which then adds an additional dimension to what is priced in.
Also this week we get the minutes from the Fed’s Mar 17 meeting and the seven-day Spring Meeting of the IMF and World Bank all week at which Chair Powell speaks on Thursday. Scheduled releases are thin, with only the RBA rate decision and Canadian NFP of note.
Indices were flat today overall, however some bank shares took a hit on the failure of Archegos Capital, a hedge fund. Credit Suisse and Nomura were hit worst. The dollar continued to rise in line, pushing gold down and yields rose. Oil was slightly up.
Tuesday March 30
Stocks fell today, with NDX hit worst as the rotation into post-pandemic stocks started again. European indices rose, partly due to weak currencies again a strong dollar (DXY +0.45%), and a rise in German inflation from 1.6% to 2%. Gold fell even more (GLD -1.71%) in line with the dollar, and Oil reversed. Bonds were flat on the day.
Wednesday March 31
A summary of the $2trn Biden plan was released today, which includes huge spending and also tax hikes. Whether it will be passed is another matter. Most sectors were flat or down, but tech shares (more immune to tax hikes) rose, reversing yesterday’s rotation. A lot of the move was in the afternoon, suggesting end of month positioning may also have been an effect. USD took a breather and pulled back (with Gold up). Oil which follows industrials was down. Yields were slightly down.
Thursday April 1
The new month and quarter opened with a further rally, with NDX outperforming, and SPX closing above the psychological 4,000 mark for the first time. It took 14 years for the doubling from 1,000 to 2,000, yet only six and a half from that point to 4,000.
The dollars was down and yields continued to fall in line producing an inverted-V week for both instruments. Gold was down in line. Oil was up to close the short week more or less flat.
Friday April 2
On Good Friday markets are closed almost everywhere, the exception being futures, forex and Japan. The blowout NFP (916k vs 647k) led to a rise in US and European futures indices, particular into the close. USD advanced notably as well. Gold, Oil and bonds were not traded.
WEEKLY PRICE MOVEMENT
A positive week for most indices with NDX the leader. GBPJPY was the top forex mover up 1.29%. Bitcoin was up, but ETC advanced much further, making an all-time high. FANGS were very strong, outperforming NDX.
I made 0.71% selling EURNZD, total to date -1.06% 8/12 wins. Let’s try the reversal of the biggest mover again and sell GBPJPY.
Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day.
NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
- Biden Infrastructure & Tax Bill
- IMF/World Bank meeting
- FOMC Minutes
- RBA rate decision
Monday April 5
Today is Easter Monday and Ching Ming in Hong Kong. Almost everywhere except China, Japan and the Americas are closed. Expect light forex (London), but a possibly more volatile US. There is a rate decision in Chile.
01:00 Aus TD Securities Inflation
13:45 US Markit Svcs/Comp PMI
14:00 US ISM Svcs PMI (Mar) (e57.5 p55.3)
Tuesday April 6
Hong Kong is closed for a second day. The main news is the Australian rate decision.
01:45 Caixin Svcs PMI(Mar)
04:30 RBA Rate Decision/Statement (e0.1% hold)
09:00 Eurozone UnEmp Rate
22:00 Aus Commonwealth Bank Svcs PMI(Mar)
Wednesday April 7
Some attention will be paid today to the minutes from the Mar 17 Fed meeting, but otherwise only low-level data. There are rate decisions in India and Poland.
05:00 Japan Leading Economic Index
07:55 Germany Markit Comp PMI
08:00 Eurozone Markit Comp PMI
12:30 US Trade Balance
12:30 Canada Trade Balance
14:00 Canada Ivey PMI
18:00 US FOMC Minutes
23:50 Japan Current Account
Thursday April 8
In another light news day, Fed Chair Powell speaks online today at 1600 at the IMF Debate on the Global Economy.
06:00 Germany Factory Orders
11:30 ECB MPC Minutes
12:30 US Jobless Claims
16:00 Fed Chair Powell speech
Friday April 9
The week ends with the Canadian NFP, a week after the US. The IMF meeting continues into the weekend. There is a rate decision in Romania.
01:30 China CPI (e-0.4% p-0.2%)
06:00 Germany Trade Balance/Ind Production
12:30 US PPI
12:30 Canada NFP/AHE/UnEmp (NFP e75k p259.2k)
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