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Weekly commentary - 14 April 2021

Weekly Market Commentary

 

 

 

 

 

 

 

 

Markets continued their rally last week as investors position for a goldilocks economic recovery

 

Markets continued their rally higher on Friday, driven by stabilised treasury yields and increased optimism over a goldilocks growth environment. In Asian trading overnight, risk appetite has faltered a little but rather than reflecting the latest news, this is more of a nod towards the key week ahead for data and earnings.

US inflation is expected to pick up as year-on-year comparables become more important

 

Tomorrow sees the publication of the US inflation report where core inflation (excluding energy and food) is expected to increase to 1.5% year-on-year but headline inflation is expected to reach 2.5%1. With Q1 2021 datasets, we need to remember Q1 2020 which saw a normal January in advanced economies, largely normal February and rapid lockdowns in March. This means we may need to wait one more quarter for the most impressive year-on-year numbers. There were some concerns overnight when Federal Reserve (Fed) Chair Jerome Powell said, during a CBS ‘60 Minutes’ interview, that ‘we feel like we’re at a place where the economy's about to start growing much more quickly and job creation [will be] coming in much more quickly.’ This has been cited as one of the factors driving sentiment slightly lower today as this optimism may imply that the Fed is less comfortable with the inflation picture ahead. Investors will be watching Powell’s speech on Wednesday to the Economic Club of Washington to see if this more bullish sentiment is continued and, if so, whether the narrative of the bank looking through transitory inflation remains.

US earnings season begins on Wednesday with financials leading the way in an important set of results

 

The US earnings season begins later this week with US financials leading the way in terms of reporting. The expectation is for a strong pickup in US earnings growth with almost 25% year-on-year growth estimated by Factset2. As with the inflation data, because Q1 was a ‘partial COVID-19’ quarter, the year-on-year comparable will be less dramatic than Q2 where the market, according to Factset, expects we will see over 50% earnings growth3. Sectorally, COVID-19 losers will see the largest bounces, with consumer discretionary expected to be a standout performer. Financials are also expected to see gains as steepening yield curves start to improve net interest margins and sunnier economic expectations filter into loan loss provisions. 


Risk assets have climbed dramatically so far in April and today we are starting to see a pause for breath ahead of a week which will give us the latest figures on retail sales, inflation and begin the critically important US earnings season. With equities hitting all time highs, it is especially important that earnings ‘grow’ into these higher valuations. Expect a more interesting week this week!

 

1 Bloomberg (https://www.bloomberg.com/markets/economic-calendar?sref=CZCP1vND)
2,3 Factset, 9 April 2021 (https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_040921.pdf

 

Source of Content:  Brooks MacDonald

 

THE WEEK IN NUMBERS

 

Equity Indices (Price Only)

 

In Local Currency

In Sterling

Index

Last Week

YTD

Last Week

YTD

U.K.

FTSE 100

2.6%

7.0%

2.6%

7.0%

FTSE 250

2.4%

8.6%

2.4%

8.6%

FTSE All-Share

2.6%

7.5%

2.6%

7.5%

U.S.

US Equities

1.2%

9.9%

2.5%

9.3%

Europe

European equities

0.8%

12.0%

2.6%

8.4%

Asia

Japanese equities

-1.2%

8.6%

0.5%

1.3%

Hong Kong equities

-0.8%

5.4%

-0.2%

4.5%

Emerging Markets

Emerging market equities

-0.6%

3.0%

0.6%

2.5%

Government bond yields (yield change in basis points)

 

Current Level

Last Year

YTD

10-year Gilts

0.77%

-2

58

10-year US Treasury

1.66%

-4

75

10-year German Bund

-0.30%

3

27

Currencies

 

Current Level

Last Year

YTD

Sterling/USD

1.3707

-1.4%

0.3%

Sterling/Euro

1.1515

-2.2%

3.0%

Euro/USD

1.1899

0.7%

-2.6%

Japanese yen/USD

109.67

0.5%

-5.9%

Commodities (in USD)

 

Current Level

Last Year

YTD

Brent oil (bbl)

62.95

1.3%

21.5%

WTI oil (bbl)

59.32

1.1%

22.3%

Copper (metric tonne)

8926.5

1.6%

14.9%

Gold (oz)

1743.88

0.9%

-8.1%

Sources: FTSE, Canaccord Genuity Wealth Management

 

 

 



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