Market Commentary – May 19, 2021

Kevin Jock

19th May 2021

    Lingering inflation concerns saw Wall Street lose ground ahead of Wednesday’s Federal Reserve meeting minutes. Officials have continually reiterated their stance to remain super accommodative as they see the recent spike in inflation as transitory. Nonetheless, investors are keen to deciphers the minutes outlook for clues if the Feds tone has changed, especially as many speculate, we’re at the beginning of a commodity super cycle. Both the S&P500 and Dow Jones fell 1% whilst Nasdaq performed slightly better, down only 0.8%.

    In Europe, a similar story was depicted across the board where gains early on open were erased slowly through yesterday’s session. The STOXX50, a prime example, gapping up 0.5% initially only to end in negative territory settled at -0.7%. Flash GDP data showed the region entering a technical recession, quarterly employment change contracted, and trade balance appears to be collapsing. Across the channel, despite posting better labour market figures, the FTSE100 could not fend off contagion ending lower by 1%.

    Mixed performance in Asia with Australia S&P200 tumbling 1.1% thus far weighed down by not only the global inflation narrative by also weakening consumer sentiment. The Nikkei was unchanged whilst the Hang Seng was closed today as Hong Kong observed Buddha’s Birthday. Complacency and supply constraints were seen as the presiding factors over the regions recent outbreak. Taiwan went from near-zero infections to triple digit daily figures with the government soon approaching the decision for a hard lockdown. Meanwhile, Singapore has lengthened time between vaccines to at least 6 weeks as demand for vaccinations grow.

    Revived nuclear restriction negotiations between the U.S. and Iran pressured crude oil prices lower to below $65. Should talks succeed, sanctions on Iranian oil exports could lift and global supply would be inundated with new stock. The U.S dollar sank against majors and gold post 4 consecutive days of advances to $1,869.

    No relief for bitcoin as the cryptocurrency falls below $40,000 after the PBOC reiterated that Chinese institutions cannot accept digital tokens as a form of payment. After reaching an all-time of $64,900 the alternative asset has fallen 40%.

bitcoin-May-19-2021-05-18-48-67-AM

Figure 1 (Source: IS Prime) Bitcoin Daily : From highs of $64,900, bitcoin down 40% as bad news continues to hit headlines.

Headliner to Review

  • Implementing a state of emergency in Japan for Q1 saw quarterly GDP contract from 2.8% to -1.3%. The nation had hoped the Olympics would provide a well needed boost however even that’s in doubt as citizens remain split on whether the event should even be held considering COVID-19 risk
  • Labour market data in the U.K. improved beyond expectations with the unemployment improving to 4.8% and claimant count change contract by -15.1k. The biggest factor on this improvement being easing of many coronavirus restrictions.
  • Europe entered a technical recession as expected with quarterly GDP at -0.6% alongside unemployment change contracting -0.3%. The contraction address addressed by continent-wide national lockdowns implemented by varying states to halt a resurgence in COVID-19 cases.

Headliner to Watch

  • Yearly CPI data out the UK expected to accelerate from 0.7% to 1.5%. Increases In oil and metal prices seen as a major factor.
  • Canada set to post 4 consecutive months of inflationary pressure with monthly CPI at 0.2%
  • Crude oil inventory expected to return to surplus at 1.5m bbl. A combination of gradual production increases from OPEC members alongside COVID outbreaks in India is said to slow global demand.
  • Employment in Australia expected to toddle along with 20.3K Aussies to find employment with an unemployment rate 5.6%.

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Authors:
Antony Tan
Kevin Jock