Market Commentary – May 11, 2021

Kevin Jock

11th May 2021

    Wall Street fell on Monday with inflationary risk once again grabbing headlines. Nasdaq underperformed among the lot tumbling 3%, the S&P500 declined 1.2% and Dow Jones snapped a 5-day winning streak. Ahead of official CPI data releases on Wednesday, preliminary forecast by the Central Bank of New York yesterday saw median inflation expectations for the year at 3.4%, its highest level since September 2013. Despite the Federal Reserve’s constant reassurances, they would allow inflation to exceed 2%, investors worry elevated yields would depress equity valuations, particularly tech stocks that do not pay generous dividend yields. This situation is further exacerbated amid a potential commodity super-cycle, especially as copper hits record highs whilst iron ore prices jump 10% on the back of a global economic recovery that extends beyond China’s metals demand.

    European benchmarks were not spared from the inflation rout despite optimism of EU states re-opening up and continuing easy monetary policy. The French CAC retreated from all-time highs, DAX down 0.7% and STOXX slipping 1.1%. The FTSE100 snapped their 3 days rally amid easing restrictions that will allow Brits to participate in social contact alongside resumptions in indoor entertainment activities.

    In Asia, a double whammy between tracking overnight U.S. tech stocks and domestic cyclicals affected by the recent state of emergency saw the Nikkei drop 2.3% intra-day. The Hang Seng fared no better, gapping 0.9% lower at open, and subsequently declining another 1.2%. Ahead of tonight annual budget release, Australia’s S&P200 somewhat outperformed down only 0.8%.

    The U.S. dollar index stood steady though underperformed against the pound as the GBPUSD rallied 130 pips. With the conservative party gaining greater foothold, a Scottish referendum unlikely to past, and a successful vaccination roll-out in the country, risk of future uncertainty has dimmed. Meanwhile, gold rallies 4 consecutive days, crude oil fluctuates around $65 and bitcoin back down to $55,000.

Nikkei-1

Figure 1 (Source: IS Prime) Nikkei225 Daily : Amid a string of state of emergencies, the Japanese Nikkei consolidates for the past 2 months.

Headliner to Review

  • China’s YoY CPI data came in worse than anticipated at 0.9% however nonetheless still surged from 0.4%. Likewise, PPI data rose to 6.8% from 4.4%. The increases largely a result of government infrastructure projects.
  • In a surprise press conference, President Biden addressed the nation remarking on improving labour conditions and economic growth unseen since 40 years.

Headliner to Watch

  • Australia is set to release their annual budget today with analysis seeing an $84bn deficit, $40bn in additional stimulus over the next 2 years and likely tax cuts for low and middle income earners.
  • Bank of England’s Andrew Bailey will participate in an online panel remarking on topics of “Secured overnight financing rate, term rates and loan market developments”.

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Authors:
Antony Tan
Kevin Jock