Market Commentary – May 6, 2021

Kevin Jock

6th May 2021

    Another intra-day tumble saw Wall Street erase early gains after the White House announced their support to suspend intellectual property rights for COVID-19 vaccines amid extraordinary circumstances. A similar measure was proposed by the WTO back in October, however then President Trump had firmly opposed such plans alongside the UK, EU and Switzerland. As expected, the decision hit pharmaceutical companies hardest dragging down overall sentiment in markets. Nasdaq again hit hardest recording 5 consecutive days of declines.

    Final statements amid the G-7 meeting saw foreign ministers take a last dig at China, voicing concerns against human right abuses, encroachment onto Taiwan’s borders and cyber espionage. As President Biden continued his predecessor’s firm stance towards China, European allies have begun to follow suit.

    In Europe, broad-based benchmarks recovered previous days losses following U.S. Treasury Janet Yellen’s correction overnight whilst the FTSE100 hit a 15-month high. Meanwhile, Asia opened mixed as Japan and China resumed trading after a long weekend holiday. The Hang Seng despite a volatile session is set to close unchanged. Investors are awaiting whether China’s economic czar, Vice Premier Liu He will bail out the troubled Chinese financial conglomerate Huarong. Allowing the firm to collapse could ignite a financial crisis. Elsewhere, the Nikkei rallied 1.2% and S&P200 fell 0.9%.

    Crude oil fell but remained above $65 despite inventories in greater than deficit than anticipated. The U.S. dollar index was mute, gold remains in a tight range between $1,760 – $1,800 and bitcoin crept back to $57,000.

Crude Oil-May-06-2021-06-15-19-39-AM

Figure 1 (Source: IS Prime) Crude Oil Daily : Investors continue to buy up crude oil as inventory deficit signal despite product increases from OPEC, recovery demand outstrips supply.

Headliner to Review

  • ADP non-farm employment change came in worst than expected though still increased. 872k was estimated but only 742k actualised. In one way figures can be construed as exceptional whilst plays down the risk of inflationary pressure.
  • US economic activity in services not only missed forecast was declined from 63.7 to 62.7. However the devil in the details suggest this was not a demand issue but rather supply delays impacting businesses.

Headliner to Watch

  • No changed is expected from the BOE and the economy is still far from the central bank in pulling back quantitative easing. Investors though remain alert on the banks outlook for 2021, particularly as consensus see a potential tightening in monetary policy as early as 2022.
  • Unemployment claims out of the U.S. expected to edge lower from 553K to 540K. The improvement largely a result of President Biden’s fiscal initiatives and improving COVID-19 conditions.
  • RBA set to release their monetary policy statement. As expected, no changes to both policy rate and asset purchases on Tuesday as the central bank recognized that despite being in a better position, the global recovery remains patchy.

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Antony Tan
Kevin Jock