In a week that saw President Biden float the idea of revoking or limiting vaccine producers’ patents, and a large NFP surprise (266k vs 978k est) to the downside, delaying QE taper, the net result was new ATHs for DJIA and SPX, and the strongest rotation out of tech for nine weeks. Vaccine shares were, unsurprisingly, hit particularly hard. Sell in May may have been the cause of Tuesday’s pullback, the worst since March, but it didn’t last.
The safe haven dollar also hit a nine-week low, giving Gold its best week since November. Oil was up in line with the dollar and Dow. Bonds were slightly up on the week.
Next week should see further fallout from the NFP shock. The key macro report is US inflation on Wednesday, with a core estimate of 2.3%, well ahead of 1.6% and over the Fed target. A match or beat at this level may be taken as a pointer to QE taper. Earnings are quiet, with only DIS and BABA of note reporting.
Mon May 3
Today saw what we can now call A vaccine rally, with a 1.14% variance in DJIA (+0.70%) and NDX (-0.44%), based on recovery hopes, reversing Friday’s fall. USD also reversed Friday’s rally, pushing Gold and Oil up, the latter also in line with stocks, particularly industrial stocks. Bonds were also up.
Tue May 4
A remark from TreasSec Yellen that “interest rates might need to rise” was enough to cause a sharp pullback, the worst since Mar 18th. NDX was down a huge 1.85% (AAPL down 3%), although DJIA managed to stay flat, more evidence of rotation. It was Turnaround Tuesday for currencies and Gold as the dollar reversed back up. Bonds were up in line. However, Oil continued to rise.
Wednesday May 5
Today was eventful. Janet Yellen clarified her remarks saying she did not foresee “an inflationary problem”. Markets recovered. Meanwhile President Biden mentioned possibly waiving the patents on the vaccine drugs, causing an immediate sharp fall in MRNA, BNTX and other producers. Finally, the ADP report missed, but still showed a healthy improvement on last month. The net result was a positive day for DJIA, negative for NDX. The dollar fell and Gold rose in line with equities. However bonds were up again. Oil reverses down, losing Tuesday’s gains.
Thursday May 6
Markets were flat most of Thursday, looking for direction after Wednesdays various news, and by the end of the day, took the positive view, and rallied strongly into the close. The dollar fell again, pushing Gold up. Oil carried on down. Bonds were flat. There was no change at the BoE, and GBP hardly moved.
Friday May 7
Markets had been expecting a substantial NFP, at least as much as the ADP print, so the actual print of 266k was a big miss. Markets saw this as “bad is good”, ie delaying QE taper, and rose sharply on the open, staying up all day, with new ATHs on SPX and DJIA. For the same reason, the dollar fell even more sharply than in previous days. CAD closed at 1.2132, its lowest close for six years. Bonds spiked up on the NFP print, but immediately fell again. Oil completed an inverse-V shaped week.
WEEKLY PRICE MOVEMENT
A breakout week with DJIA the best performer at 2.67%, and NDX the worst at -1.02%. The top forex mover was NZDUSD up 1.62%. ETH surged ahead of a flat BTC. In the last four weeks ETH has outperformed BTC by 86%! FANG stocks in general underperformed NDX, with AMZN particularly down as the ‘COVID trade’ unwinds.
After five weeks of wins, I got CADJPY wrong, it went up, and I lost 0.65%, making my running total 12/17, but sadly a -1.23% running loss.vWith USDCAD at a six-year low, I will take a chance on it reversing. GBP looks like the strongest at the moment, so I will buy GBPCAD, which is at/near support.
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)
- US Chinese and German inflation
- US and Australia Retail Sales
- Various CB speeches
- DIS and BABA earnings
Monday May 10
As is often the case, a quiet Monday.
01:30 Australia Retail Sales (e1.4% p1.4%)
23:30 Japan Overall Household Spending
Tuesday May 11
ZEW sentiment may reflect EU citizens view of their governments’ vaccine programmes. There is a Treasury auction of $58Bn of 3-year notes today.
01:30 China CPI (YoY e1.0% p0.4%)
09:00 Eurozone ZEW Economic Sentiment
09:00 Germany ZEW Economic Sentiment
14:30 Fed Williams speech
14:30 BoE Governor Bailey speech
Wednesday May 12
The most important print of the week is US inflation today. The estimate is above the Fed target, and if this is matched or beaten, we could see a stocks reversal, anticipating taper. The Treasury auction $41Bn of the bellwether 10-year note today. There is a rate decision in Romania.
00:30 Aus Westpac Consumer Confidence
05:00 Japan Leading Economic Index
06:00 UK Mfr/Ind Production
06:00 UK Q1 Prelim GDP (e0.5% p1.3%)
06:00 Germany CPI (e2.1% p2.1%)
09:00 BoE Governor Bailey speech
09:00 Eurozone Ind Production
10:00 UK NIESR GDP Estimate (time approx.)
12:30 US CPI (Core YoY e2.3% p1.6%)
13:00 Fed Clarida speech
18:00 US Monthly Budget Statement(Apr)
23:50 Japan Current Account
Thursday May 13
There is a $27Bn auction of 30-year paper today. Chinese giant BABA and Dow stalwart DIS report today. There is a rate decision in Mexico.
01:00 Aus Consumer Inflation Expectations
12:00 BoE Cunliffe speech
12:30 US PPI
12:30 US Jobless Claims
15:00 BoC Governor Macklem speech
16:00 BoE Governor Bailey speech
Friday May 14
Retail Sales has less ‘bite’ than CPI as an inflationary measure but in the event of an inconclusive CPI, may have some effect, especially on a strong beat.
10:30 DE10Y Bond Auction (time approx.)
11:30 ECB MPC Minutes
12:30 US Retail Sales (Apr Control Group e0.8% p6.9%)
14:00 Michigan CSI (May Prel e89.5 p88.3)