Stock Markets

Trading was truncated this week as markets were closed on Monday in commemoration of Memorial Day. This left major indexes slightly higher for the week with energy shares outperforming other sectors in the S&P 500 Index. The strong performance was attributed to the increase in oil prices to their highest level in two years. Trailing among the sectors were the consumer discretionary shares, pulled down by the decline in Tesla share prices. Volumes traded were light as may be expected during the summer holidays. Buying and selling by retail investors were concentrated among the smaller-cap, consumer-oriented shares popular on social media. Trading particularly heavily and with strong volatility were theater chain AMC shares. There is also some temerity in stock activity as worries about possible inflation increases are still prevalent.

U.S. Economy

Still, the focus of attention was the strengthening economic recovery. The release of the closely monitored monthly nonfarm payrolls report caused a stir on Friday, with the Labor Department reporting the addition of 559,000 jobs in May which was still short of the forecasted 670,000. Job growth may be improving, but recovery is not as speedy as initially estimated. The labor force participation rate also trended lower at 61.6% from 61.7%. There was some good news, though, as the unemployment rate dropped from 6.1% to 5.8%. Average hourly rates grew by half a percentage point, suggesting a contracting labor market. The payroll gains have doubled in May over the preceding month, which signals that hiring momentum may be increasing as the economic reopening gains steam.

• About 7.64 million jobs are still unrecovered compared to pre-pandemic levels, thus there is still much room for expansion in the labor market. There is every reason to believe that the job growth rate will continue to increase for the coming years as jobs lost to the pandemic will return. So far, the strongest gains in hiring are emanating from the leisure and hospitality sectors (292,000) and the education sector (144,000). These were the hardest-hit sectors during the pandemic, suggesting an upturn in the last sectors to have lagged.
• Continued economic expansion may be driven by increased consumer spending resulting from the rise in wages and employment. While the rise in average hourly wages is encouraging in this respect, it also cannot be dismissed that it may also contribute to rising inflation. It is highly improbable at this point, however, that a wage-price spiral may occur because of the depressed income and employment levels during the pandemic. At present, however, the float of stimulus money and current labor shortage may prompt the Federal Reserve to adopt tighter monetary policies to get ahead of inflationary pressures. Although the prospects of increasing inflation may not be dismissed, neither does it seem imminent, thus it is unlikely that the Fed may prematurely impose excess liquidity tightening measures.

Metals and Mining

For most of May, gold prices trended upwards to rise above $1,900 per ounce, an uptrend that prevailed until the end of the month. As of June, however, it appears that the uptrend has been interrupted and prices began to descend. The unemployment report released during the week indicated less than 400,000 applications, prompting worries of more stringent monetary policies by the Federal Reserve. The price of gold plunged to $1,860 per ounce before pulling back higher to close the week at $1,894.96. There is still significant upside, however, since the historic ratios for gold miners’ valuations vs. the price of gold are still multiples ahead.

Silver traded sideways for the last trading session of May, beginning the week at $27.77 per ounce and proceeding higher the following way to $28.44. Pressure then took over to send the metal down to $27, ending the week at $27.77. Platinum also dropped 2.4% for the week that saw prices at their lowest in two months. Despite holding above the $1,160 level for most of May, it dipped to $1.138 per ounce during the week but ended Friday at $1,157.70. Its importance in the production of clean energy suggests that higher prices may be forthcoming. Palladium held above $2.700 per ounce for the week, a correction from its all-time high in May. It ended the week at $2.732, largely on concerns regarding supply issues since palladium is a catalyst metal.

Base metals mirrored the lackluster performance of the precious metals group. Copper moved closer to $10,212.50 per tonne on the first trading day of June, but traded south below $10,000 two days later and ended the week at $9,967. The pullback was not entirely unexpected, although the dips were met with bargain hunting, indicating possible upwards movement after some consolidation. Zinc traded above $3,000 until Wednesday, but Thursday onward saw it drop to end the week on Friday at $2,977.50. The price of Nickel climbed in the last two weeks of May, From $16,781, it rose 8% to $18,147 on the first of June. On Friday, it was valued at $17,945. Finally, lead traded sideways during the week, beginning at $2.208 per tonne, touched $2,228.50 by midweek, and closed Friday at $2,193.50.

Energy and Oil

OPEC+ has drained global inventories worldwide and sent oil prices soaring during the week. While part of the bullish sentiment is due to anticipation of the pandemic’s end, it was also triggered by the likelihood that the US may not agree to a resumption of the Iran nuclear deal. Oil appears to be gearing for a breakout above $70 per barrel as players begin to see this as a sustainable level.

Further signaling threats to oil supply is the suspension by the US of new leases in the Arctic National Wildlife Refuge (ANWR). The suspension may trigger moves toward litigation, but even with this, the ANWR may remain suspended for some time as legal proceedings unfold. Canadian oil has also come under pressure from shareholders to reduce its emission levels which are presently higher than that of US-based companies. Analysts estimate that nearly half of all Canadian oil production has pledged to net-zero emissions in the future. Colombian oil is also under threat as violent anti-government protests threaten the country’s security. Road blockades related to the political unrest are impacting the Colombian petroleum industry as well as the country’s economic recovery in general.

Natural Gas

The prices of liquid natural gas (LNG) are rising together with the strengthening demand. For the second consecutive week, Asian spot prices climbed to return to their highest levels since January driven by strong demand from China and Europe. LNG trade reached record highs last year at the same time its global trade volume soared to peak levels, despite a slowdown in the growth rate resulting from the pandemic. For the report week, May 26 to June 2, natural gas spot price movements were mixed on listless trading. The Henry Hub spot prices increased to $3.05 per million British thermal units (MMBtu) from $2.88/MMBtu at the start of the week. The June 2021 NYMEX contract expired on June 2 at $2.984/MMBtu. The July 2021 contract price rose by $0.05/MMBtu to $3.075/MMBtu during the week. The 12-month strip averaging July 2021 through June 2022 futures contracts were priced at $3.049/MMBtu, higher by $0.05/MMBtu.

World Markets

Optimism prevailed in the European bourses as the prospects of continued economic recovery grew brighter. However, investors’ concerns are growing that the central banks may deem inflationary pressures were intensifying to the point that they may withdraw stimulus sooner than originally anticipated. The pan-European STOXX Europe 600 Index closed on Friday 0.80% higher than last week’s close. Italy’s FTSE MIB outperformed the other indexes, rising 1.59%. Germany’s Xetra DAX Index added 1.11% to last week’s close, while France’s CAC 40 Index rose by 0.49%. The UK’s FTSE 100 Index also gained, by 0.66%. The core eurozone bond yields lost ground as did the peripheral European bond markets which tracked the core. UK gilt followed US Treasury yields higher.

Stock trading in Japan was mixed over the past week as the Nikkei 225 Index slid by 0.71% and the broader TOPIX Index rose by 0.60%. Investor sentiment was tepid as the government extended the coronavirus state of emergency in Tokyo, Osaka, and seven other prefectures to the 20th of June. The Japanese 10-year government bond remained unchanged at 0.08%. Regarding currencies, the yen closed lower against the US dollar at JPY 110.18. Over the longer term, the OECD revised Japan’s economic growth projections upward, to 2.6% in 2021 and 2.0% in 2022. Japan’s GDP per capita is expected to return to its pre-pandemic levels by the third quarter of 2021.

China’s stock market corrected slightly for the week after three weeks of continuous gains. The benchmark Shanghai Stock Exchange dipped lower by 0.2% while the large-cap CSI 300 Index slid slightly further by 0.7%. In May, foreign investors poured money into Chinese stocks and bought up $8.7 billion worth of equities, making this the highest single-month gain in foreign stock investments this year. The bond market’s yield paused in its downtrend. The 10-year Chinese government bond (CGB) yield increased by 2 basis points to 3.11%; compared to other major government bond yields, this modest rise appeared relatively high. Bloomberg’s local currency index for CGBs over the last six months returned 3.4%; comparatively, the spread for 10-year U.S. Treasury yields contracted by almost 100 points.  

 The Week Ahead

Investors can look forward to the release of the consumer price index (CPI), hourly earnings, and consumer credit reports in the coming week.

Key Topics to Watch

• Consumer credit
• NFIB small-business survey
• Trade deficit
• Job openings
• Wholesale inventories
• Initial jobless claims (regular state program)
• Consumer price index
• Core CPI
• Business formations (year-over-year change)
• Household wealth (year-over-year change)
• Federal budget
• Consumer sentiment index (preliminary)

Markets Index Wrap Up

Stock Markets

Light trading prevailed during the week while recording solid gains, raising the S&P 500 Index close to 0.5% of its all-time intraday high that it achieved in the first week of May. It retraced thereafter but remained up for the month. The light volumes were evident with Monday experiencing the fifth-lowest turnover in a non-holiday session from the beginning of the pandemic. Among the week’s best performing indexes are the technology-heavy Nasdaq Composite and the small-cap Russell 2000 index. Value shares were easily outperformed by their growth counterparts, with Facebook and Alphabet, owner of Google and YouTube, spearheaded communication services stocks listed in the S&P 500. Tesla rebounded strongly, thus boosting consumer discretionary shares. The light trading marked the long holiday weekend; markets will remain closed on Monday, May 31, Memorial Day. The lack of directional drivers for the week also contributed to the listless trading as investors were sidelined in the absence of any buying or selling motivation.

U.S. Economy

The previous week’s worries concerning runaway inflation subsided during this week. Some confidence has returned among investors as about 97% of S&P 500 listed companies have released their first-quarter earnings results. It is not surprising that earnings are expected to increase by 50% from year-ago levels since the previous year’s earnings were depressed by the pandemic. The income and spending data for the first quarter indicate that consumers still have significant excess savings that are likely to fuel demand for goods and services as economic activities begin to normalize,  

• The strong recovery in profitability is fueled by pent-up demand from the pandemic lockdowns and the buying power enabled by the government’s stimulus packages. There is a slight lag in the pace of hiring which is nevertheless compensated by an increase in the adoption of the appropriate technological systems. Companies took advantage of record-low interest rates and are thereby realizing significantly lower interest expense in financing their operations.
• The US dollar has significantly weakened against international currencies, which is an advantage for multinational companies as U.S. goods and services are now more competitive in the international market. With respect to the adequacy of supply chains, the higher input costs and material shortage may pose challenges to companies’ profitability in the short term. Companies impacted nevertheless appear willing to pass the added costs on to consumers who are not short of buying power to absorb the price increases in the near future. Towards 2022 borrowing costs are expected to rise while the economy expands, and the labor supply tightness currently experienced will ease off as wage growth accelerates and the employment slack is gradually eliminated.

Metals and Mining

Precious metals performed remarkably well in the past week, with gold exceeding $1,900 per ounce for the first time since January. It traded briefly as high as $1,909 on Wednesday before the release of positive U.S. economic data and rising 10-year Treasury yields arrested the flight to value. While the price returned to below $1,900 levels, investors expect gold to again surge in mid-year since in the summer of 2020, gold traded at above $2,000 per ounce. It is, therefore, possible that it will test those highs again this year as continued overspending and poor fiscal policy will provide a catalyst for its continued ascent. As of Friday, gold traded at $1,893.23.

Silver likewise climbed to a three-month high of $28.16 per ounce during the week. The gold/silver ratio reached a multi-week high of 70 as silver neared the $30 level. The ratio has then receded slightly and may decline to the low 60s level during the third and fourth quarters of this year, although some see the metal testing higher levels in the second half of 2021. Silver closed the week trading $27.77 per ounce. Palladium continued to reach fresh ground this week, as platinum also fetched higher prices. Platinum ascended to $1,203 but corrected to end Friday at $1,166.25 per ounce, and palladium traded at $2,724 per ounce at the end of the week.

Base metals also moved northward across the trading week, recovering lost territory during the correction in the previous week. Supply shortage became imminent with the issues in the Democratic Republic of Congo regarding the export of copper and cobalt concentrates. This led copper to rally from $9.868 at Monday’s opening trading to $10,032 by Friday. Zinc neared $3,000 per tonne in late trading but reached resistance and descended slightly to $2,994 per tonne. Nickel slid to $17,000 briefly, thereafter rallying to $17,300. Stainless steel will remain the main application for nickel through the next ten years as it is driven by demand from China. Nickel traded $17,364 on Friday,  Lead ended the week at $2,182.50 per tonne, an increase of $50 for the week.

Energy and Oil

The oil industry experienced a memorable week as oil majors appear to be embarking on a new strategic direction. Foreseen restrictions on the supply side appear to add momentum to a bullish scenario in the market, but the impact on the fundamentals is not expected to become evident in the short term. Cuts in greenhouse gas emissions by as much as 45% towards 2030 are expected to cause the rest of the industry to experience a decline in its energy output. A sharp drop in oil and gas sales resulting in a supply crunch may result in the long term due to legal exposure to Scope 3 emissions. Increasing credit risk is foreseen by Moody’s Investor Service for the major oil producers due to climate change concerns. In the meantime, the largest oil producers in the Arab Gulf appear to be considering a shift to hydrogen production, particularly the more sustainable type produced from water electrolysis supplied with electricity from wind and solar energy. The move to hydrogen is gradually gaining momentum among governments and the world’s largest oil companies.

Natural Gas

This report week, May 18 to May 26, natural gas spot price movements ended mixed. The Henry Hub spot price remained unchanged at $2.88 per million British thermal units (MMBtu). On Wednesday, the June 2021 New York Mercantile Exchange (NYMEX) contract expired at $2.984/MMBtu, higher by $0.02/MMBtu from the previous week. During the same week, the July 2021 contract price was unchanged at $3.027/MMBtu. The price of the 12-month strip averaging July 2021 through June 2022 futures contracts ascended to $3.004/MMBtu, higher by $0.01/MMBtu.

World Markets

The European exchanges reacted favorably to the continued signal that the U.S. will continue pursuing a slack monetary policy and a massive fiscal spending plan. The pan-European STOXX Europe 600 Index closed higher for the week by 1.02%. France’s CAC40 climbed 1.53%, Italy’s FTSE MIB Index gained 0.78% and Germany’s Xetra DAX Index advanced 0.53%. The UK’s FTSE 100 Index moved sideways for the week partly due to the UK’s appreciation against the US dollar. The UK currency has been gaining strength for the past five consecutive weeks, encouraged by the reopening of the economy and comments by the Bank of England (BoE) that it may start to raise interest rates by the first semester of 2022. The core eurozone bond yields eased but rose suddenly by the end of the week as U.S. Treasury yields descended. Peripheral European markets’ bond yields closely tracked the core. UK gilt yields countered the core’s direction, however, when it ascended sharply upon the BoE’s announcement of increased interest rates.

The Japanese stock market also gained for the week, as the Nikkei 225 Index ascending by 2.94% and the broader TOPIX Index rising by 2.24%. Japan’s acceleration of its COVID-19 vaccine rollout, which is scheduled for the next three months, met with positive reactions from investors. The enhanced vaccine deployment coincided with the fourth wave of infections, leading authorities to declare states of emergency over a large part of the country, including Tokyo. Fears arose that the Olympic Games might again be postponed from its July 23 starting date, particularly because the U.S. State Department had issued a travel warning for its citizens bound for Japan. The yield on the 10-year Japanese government bond remained unchanged at 0.08% as the yen weakened against the U.S. dollar to around JPY 109.82.

Chinese stocks surged as both the CSI 300 Index and the Shanghai Composite Index registering the best weekly increase in more than three months. As China passed a milestone of more than 500 million COVID-19 vaccinations, tourism-sector stocks and other counters leverage to an economic reopening rose sharply. Financial policy regulators attempted to reduce financial risk by signifying zero tolerance for commodity speculation and cryptocurrency mining. Chinese regulators likewise rejected applications for the issuance of RMB 154 billion of asset-backed securities from several companies, in a further effort to curb financial risk. The yield on the 10-year sovereign bond ended at 3.09% for the week. Short-term rates were consistently low and stable in money markets, as they have been throughout May. The renminbi rose against the U.S. dollar by 1.1%; it is at its highest exchange rate against the dollar since June 2018. Daily net equity inflows from Hong Kong into China reached $3.4 billion in midweek, which is among the largest daily net inflows on record.

The Week Ahead

Among the important economic data to be announced in the coming week are Unit Labor Costs, productivity growth, and the Markit PMI index.

Key Topics to Watch

• Markit Manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales (SAAR)
• Beige Book
• ADP employment report
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Productivity (revision)
• Unit labor costs (revision)
• Markit services PMI (final)
• ISM services index
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Factory orders

Markets Index Wrap Up

Stock Markets

The stock indices registered mixed outcomes after increased trading volatility the past week. Ending marginally lower is the large-cap S&P 500 Index, while the tech-dominant Nasdaq Composite Index increased slightly. The mixed results indicate that there is a measure of strength and resiliency in the US economy, although concerns are increasing surrounding the inflation rate the whether or not the Federal Reserve might adopt more severe measures to temper the overheating economy. The sector that posted the strongest gain in the S&P 500 is health care, while energy and industrials registered the greatest loss. The issue that affected the markets the most is that of the likelihood of inflationary pressures. The economy is gradually picking up steam while corporations report record profits over the previous year, the rising inflation appears to be less threatening in light of the bigger picture. The stock market’s performance appears to be quite stable and continued growth is expected even in light of the occasional volatility.

U.S. Economy

While concerns about a possible derailment of the ongoing economic recovery are understandable, the broader picture continues to be that of an intact and stable economy. Worries about rising inflation are nothing new in the recent economic milieu, and a rundown of the prior risk factors will provide a sense of how economic indicators will achieve equilibrium in the long run. We might cite the following:

• The 10-year Treasury yield, which is the benchmark for the 10-year interest rates, began 2021 below 1% for the first time in history. It promptly surged from 0.93% to 1.73% by the end of the first quarter. Because of the suddenness of its rise, stock investors were taken by surprise and cause the market to pull back by 4% twice during the same period. We observe that rates may be higher but historically are far from high. The expectations for stronger economic growth which had driven the interest rate increase, coming from a year of economic recession due to the lockdowns, appears to be a factor that will continue to influence the markets in the long term.
• The steep rise in stock prices from the deep market drop in March of last year has brought valuations to their peak in the last two decades, causing investors to worry that a major market correction is impending. In the first year of the recovery, the S&P 500 ascended by 75% as investors priced in their speculations that a strong rebound in corporate profits is imminent. That expectation is materializing, with earnings reports showing a 49% increase for the first quarter of 2021. Prices have increased faster than reported profits, although this is far from resembling the 90’s dot-com bubble or the financial asset crisis of past years because this time around profits are recovering from a deep fall than coming off their peak levels.

Metals and Mining

Gold continues on its upward trend that began towards the end of February, increasing at a rate of 8.9%. The recent strong performance of the 10-year Treasury yields and the U.S. exchange rate that tended to halt the advance of metal prices have decreased in April, providing gold an opportunity to advance further. The drop in yields and the dollar were in turn prompted by the strong inflation push during the week. Aside from improving fundamentals, however, the technicals show an increasing likelihood of an upward trading momentum since investors are of the opinion that the metal has already attained an interim trading low. Gold traded at $1,872.45 per ounce on Friday, May 21.

Silver approached the $30 per ounce resistance level on May 17 at the start of the trading week, but it lacked the momentum to break out. Although silver did not make it past the threshold, the continuation of the trend is likely to keep the metal at its previous highs after a period of moderate gains over the next two years. At some point, silver will gain sufficient strength to break through the barrier, possibly coinciding with the next economic and financial meltdown. The target price may be $50 at that instance. As for this week, silver closed at $27.43 on Friday.

Palladium, on the other hand, reached an all-time high of $2,829 per ounce this week due to tightness in the supply that may stretch throughout the remainder of 2021, further contributing to the rise in price. It might test the $3,000 level for the year, representing an increase of 37% year-on-year. It settled at $2,691.50 per ounce at midday last Friday. Platinum ended the week flat at $1,168 per ounce, declining 4% from Monday.

In the base metals sector, copper continued its consolidation patterns since it ascended to its all-time high at the beginning of this month when it marked its $10,724.50 per tonne resistance level. This week, it corrected to below $10,500. Zinc recorded better performance this week when it exceeded its 35-month peak of $3,063.50 per tonne. Its surge was linked to concerns regarding tax increase on Peruvian and Chilean miners that impacted supply. Zinc settled on Friday at $2,945.50 per tonne. Nickel held at $17,326 on Friday after starting the week at $17,523 per tonne. Lead traded slightly upward, beginning Monday at $2,181,50 per tonne and ending the week at $2,202.50, charting an increase of 11% in its value.

Energy and Oil

Oil is facing its biggest weekly correction since March after it charted three days of major losses. It recovered some lost area on Friday after it followed commodities in a broad sell-off on Friday. The IEA released its Net-Zero report in the middle of the week, announcing that in order to reach net zero, no new oil, gas, and coal projects shall be undertaken. This announcement is likely to have an impact on how investors regard to the future price of oil. The report was not given much credence by Asian players, however. Japanese officials regarded the EIA report as merely one of the suggestions as to how the world may reduce greenhouse gas emissions to zero by 2050, but it is not binding upon Japan which has its own energy policies. Philippine officials likewise considered foregoing any additional investment in fossil fuels a development setback that it will not abide by. The OPEC also reacted, commenting that the mandatory stop to new oil and gas investments post 2021 contrasts dramatically with the conclusions reached by other IEA reports. As such it could be the catalyst for potential instability in the oil markets if the new mandate will be followed by investors.

Natural Gas

In the natural gas industry, Qatar is cornering the market by ramping up liquid natural gas supply and reducing its prices, in effect causing a halt to LNG projects in other areas. The expansion plans of the country are significantly large that Qatar, currently the top LNG producer in the world with the lowest cost, may render other producers insignificant or unnecessary. Qatar took this aggressive move due to the threat posed on it by the US as LNG producer in the past year.

For the report week (Wednesday, May 12 to Wednesday, May 19), natural gas spot prices moved sideways. The Henry Hub spot price dipped from $2,90 per million British thermal units (MMBtu) on May 12 to $2.88/MMBtu on May 19. The price of the New York Mercantile Exchange June 2021 contract remained at the same level for the week at $2,964/MMBtu. The 12-month strip price averaging June 2021 through May 2022 futures contracts increased to $3.025/MMBtu, registering an increase of $0.02/MMBtu.

World Markets

European shares surged on indications that the economy is on the road to recovery as the coronavirus restrictions are gradually lifted. Worries remain, however, about the rise in inflation rates. The pan-European STOXX Europe 600 Index grew 0.43% during the weeks’ trading. The region’s major indices were mixed. The Italian FTSE MIB Index rose slightly, while the French CAC 40 Index and the German Xetra DAX Index remained unchanged. The UK’s FTSE 100 Index receded 0.36% as the British currency gained over the U.S. dollar on the back of strong economic reports. The core eurozone bond yields closed higher on speculations that the European Central Bank will likely slow its bond purchases. UK gilt yields dropped on worries that a new coronavirus strain is spreading, thus potentially delaying the UK economy’s full recovery.

In Japan, the stock exchange ended the trading week higher with the broader TOPIX Index up 1.13% but the narrower Nikkei 223 Index returning 0.83%. The economic data report showed mixed results. Japan’s GDP shrunk more than had been anticipated for the first quarter of the year. On the other hand, export growth for April was strong, together with the manufacturers’ business confidence which rallied to its highest level since May 2018. Falling slightly was the yield on the 10-year Japanese government bond that ended at 0.08%. The yen gained strength to close the trading week at JPY 108.66 to the US dollar. In the meantime, Chinese stocks moved sideways on listless trading. Dropping by 1% was the benchmark Shanghai Composite Index, even as the large-cap CSI 300 Index increased by 0.5% in what appears to be a recovery from the decline of its growth stocks in recent weeks. The yields on Chinese bonds fell in the fixed income market in reaction to the disappointing economic data report for April. The renminbi remained unchanged against the U.S. dollar for the week, keeping the gains it made since early April.  

The Week Ahead

Among the important reports to be released in the coming week are the GDP, building permits, and the Core PCE deflator reports.

Key Topics to Watch

• CoreLogic Case-Schiller national home price index (12-month change)
• Consumer confidence index
• New home sales (SAAR)
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• GDP revision (seasonally adjusted annual rate)
• Durable goods orders
• Nondefense capital goods, excluding aircraft
• Pending home sales index
• Personal income
• Consumer spending
• Core inflation
• Trade in goods deficit, advance report
• Chicago PMI
• Consumer sentiment index (final)

Markets Index Wrap Up

Stock Markets

The markets were set off in a new wave of volatility after the weaker-than-expected April jobs report released the previous Friday. The Labor Department reported on Wednesday that core consumer prices (that did not include food and energy) surged by 0.9% in April, the highest in almost 40 years and approximately three times analysts’ expectations. The headline consumer price index (CPI) also exceeded the forecasted 3.6%, registering a 4.2% increase for the 12 months to April. On Thursday, the reported producer prices exceeded expectations by almost two times, rising 0.6%.  The sudden increase in the inflation rate, which remained unchanged for ten years, renewed investor concerns about an overheating economy.  The S&P 500 lost 4% from its record high in early May, recovering slightly before the week’s end. Observed weakness appeared to be concentrated in high-growth and technology stocks.

U.S. Economy

While economists and investors expected the increase in CPI, the size of the jump was significantly above expectations. It is possible, however, that pandemic-related factors accounted for some of the increase in prices, somewhat mitigating concerns about the eventuality of runaway inflation. Prices are moving higher partly due to shortages in supply and the sudden increase in demand as the economy reopens further. If this were the main reason, then the CPI increase is likely to be temporary and will soon return to normal.

• Presently, the imbalance between demand and supply that is pushing prices higher is partially due to market distortions caused by the pandemic response. However, as the economy gradually opens, goods and services are seen to gradually increase to satisfy pent-up demand. This is a temporary situation that, in due time, is expected to normalize, reducing the inflationary pressure.
• Reports of high inflation rate may continue to cause volatility in the stock market, but the bull market remains intact since the economy is still reopening. Cyclical sectors and value-based investments may continue to benefit from the faster economic growth, even as long-term rates are subjected to upward pressure.
• There are two main drivers of the prices of goods and services. The first is the base effect. Base figures measured in April, May, and June 2020 were obtained at the height of the pandemic lockdowns. Due to the depressed base rates, the growth rates currently read in the high levels, not because the prices are escalating quickly, but because the prices they are compared to last year are extraordinarily low. The second reason may be traced to supply shortages and bottlenecks in manufacturing systems. There are widespread materials shortages due to supply chain disruptions, resulting in limited productions that still have to reach cost-efficient levels. Four factors contribute to the supply chain disturbances: the rapid rebound in demand, the shift in consumer spending patterns towards goods, lean inventories, and compliance with temporary covid-safety protocols.

Metals and Mining

The increase in gold prices that have materialized at the beginning of May continues to the present. Gold prices remain around the $1,840 per ounce trading range. The price increase was principally due to a reduction in the value of the US dollar. Thereafter, rising inflation and the possible surge in interest rates triggered investor concerns that tempered any further rally in the price of gold. For the week, gold remained flat; viewing it from a longer-term perspective, it already has risen by 6.6% from its March 1 price of $1,724.80. When compared to prices at the beginning of the year, however, gold prices remain down. As of last Friday, gold traded at $1,839.16.

The other precious metals are also maintaining their present consolidation. Silver neared $28 per ounce at the beginning of the week, then corrected to $26.75 on Thursday, close to its support at $26. It could still consolidate further towards the $23 range before it may find sustained momentum that may bring it back to the $30 to $32 price range in the coming months. It is possible that in the long-term, silver may once more test the $50 resistance seen in 1980 and 2011. Friday saw silver at $27.37. Other precious metals are Platinum that opened at a 60-day high of $1,269 per ounce, and palladium which likewise began the trading week at an all-time high of $2,908 per ounce. By Friday, platinum settled at $1,212 and palladium at $2,790.

The base metals took the opposite direction, trading down for the week. Copper fell by $471 despite initially trading at an all-time high. It pulled back to $10,253 per tonne and settled at $10,253.50 on Friday. The drop was seen as a much-needed correction, while the underlying market sentiment remains bullish. Zinc initially lost 4.8% during the week to recover to the $2,990 per tonne range where it remained on Friday. Nickel also suffered a correction that landed it at $17,180 per tonne on Friday. Lead also opened lower on Monday at $2,228.50 and closed Friday at 2,116. Lead and zinc will continue to consolidate for the year since last year’s surplus of these metals are expected to carry over through 2021.

Energy and Oil

After a selloff in the middle of the past week, oil prices rebounded on Friday as uncertainties continue to prevail concerning whether the market will resume a bearish or bullish direction. Brent crude continues to trade in the upper $60s range. The Colonial Pipeline, whose operations were interrupted by a suspected online hacking episode, restarted its product flows by midweek. In time, the present localized shortages are expected to eventually ease. It was reported that the company paid the ransom demanded by the hackers, but on Friday the operator of the ransomware Darkside announced that they had lost control of the servers as well as a portion of the ransom payout. It should be recalled that the shutdown of the operations of the Colonial Pipeline was the cause of the supply shortage and surge of gasoline prices.

The oil price drop on Thursday was caused by concerns about the increase in inflation rates. While the rise in inflation may drive the price of crude to higher levels, investor fears of weaker economic growth tend to pull down commodities and undercut rising prices. On Friday, however, oil prices recovered as it became evident the fuel supply shortage was temporary. In the meantime, Europe faces the likelihood of uncertain gas prices. Carbon prices are bound to test the upper limit and the EU carbon emissions policy will continue to tighten. Coal will likely be on its way out but natural gas remains under increased pressure.

Natural Gas

During this report week (May 5 to May 12), natural gas spot prices were mixed. The Henry Hub spot price slid from $2.97 per million British thermal units (MMBtu) at the start of the week’s trading, to end the week at $2.90/MMBtu. The price of the June 2021 contract rose by $0.03 at the New York Mercantile Exchange (NYMEX), finishing at $2.969/MMBtu on Wednesday, May 12, from $2.938/MMBtu one week before. The price of the 12-month strip averaging June 2021 through May 2022 futures contracts rose to $3.001/MMBtu, up by $0.02/MMBtu. The composite price for the natural gas plant liquids at Mont Belvieu, Texas slid by $0.16/MMBtu, thereby averaging $7.50/MMBtu for the trading week ending May 12. This resulted from a decline in propane prices by about 7%, thus causing the average index price to descend week over week.

World Markets

Share prices in European stock exchanges corrected in tandem with global markets. The correction was in response to signs that inflation is ramping up which in turn triggered fears of impending interest rate increases.  The pan-European STOXX Europe 600 Index closed the trading week lower by 0.54%. The major indices in the region were mixed. Italy’s FTSE MIB gained 0.63%, while the UK’s FTSE 100 fell 1.21%. France’s CAC 40 and Germany’s Xetra DAX remained relatively unchanged. The pullback of the UK index was partly due to the appreciation of the British pound against the U.S. dollar, resulting from the victory of the ruling Conservative Party in the local election. The negative correlation between the FTSE 100 Index and the value of the pound is driven by the presence of multinationals that generate revenue from abroad in the index listing. Core eurozone bonds are up in tandem with U.S. Treasury yields, due to the higher-than-expected U.S. inflation rate reported during the week.

In Asia, Japan’s stock markets fell dramatically for the week as volatility set in as a result of the unexpected and sharp increase in the US consumer price index. The spike in covid infection rates in the country and the possibility that a state of emergency will be announced in an additional three prefectures further tempered investor appetite. The broad TOPIX Index descended 2.57% while the Nikkei 225 slumped 4.43%. The 10-year Japanese government bond yield reacted by rising to 0.09%; commensurately, the yen softened marginally to end the week at JPY 109.41 to the U.S. dollar. The recovering economy is showing signs of life, however, as consumer demand registered a strong rebound from the deep slump brought about by the pandemic in the past year. Household spending increased in March by 6.2% year-on-year, in a robust reversal of the 6.6% drop in February.

China stocks, on the other hand, surged for the week as the benchmark Shanghai Stock Exchange Composite Index rose 2.1%, simultaneous with the 2.3% increase in the large-cap CSI 300 Index. China’s sovereign 10-year bond yield closed the week unchanged at 3.17% in response to the mixed economic reports. Net inflows of $9 billion in China’s government bonds were reported for April. This development is in line with Beijing’s interest in attracting foreign investments into its domestic “green bond” market, intended to support the country’s push towards renewable energy and other environmentally sustainable projects. The renminbi rose against the U.S. dollar by 0.3%, ending the week at 6.434 per dollar.

The Week Ahead

Over the coming week, look forward to the release of important economic data that includes the PMI index and existing home sales.

Key Topics to Watch

• Empire State manufacturing index
• NAHB home builders’ index
• Building permits
• Housing starts
• FOMC minutes
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Philadelphia Fed manufacturing index
• Index of leading economic indicators
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• Existing home sales

Markets Index Wrap Up

Stock Markets

Stock market indexes ended the week mixed across a broad range of sectors. Volatility set in as losses earlier in the week were partly covered by Friday’s rally. The 30-stock Dow Jones Industrial Average outperformed the technology-dominated Nasdaq Composite Index as the latter charted its heaviest weekly drop in the last eight weeks. The technology sector also underperformed in the broad S&P 500 Index, as did real estate, utilities, and consumer discretionary stocks. Value stocks saw better trading than growth stocks as they did in the previous two weeks. Over the week the earnings season continued to wind down as 442 companies in the S&P 500 listing projected to release their first-quarter performance. Overall, earnings reports have significantly exceeded analysts’ expectations.

U.S. Economy

During the week, the Labor Department released some disappointing job numbers that may have influenced the course of trading during the week. The disappointing jobs report indicated that nonfarm payrolls grew only by 266,000 jobs in April out of the 1 million jobs expected. Despite an increase in jobs in the restaurant and leisure sector, employment in the manufacturing and retail industries was diminished slightly. Overall, the unemployment rate increased slightly from 6.0% to 6.1%, coinciding with a downward adjustment in the March employment figure. The severe shortfall in the expected jobs numbers is a sign that the recovery might not be proceeding as originally forecasted. It also signals a major slowdown in employment recovery compared to the March gain of 770,000 jobs.

• The question posed by the underperformance in the job market is whether or not the shortfall is a firm indication that the economic recovery may not materialize. The analysis shows, however, that the shortfall in jobs created is only a matter of timing rather than a change in trend. The issuance of stimulus checks that were necessary to keep up demands for goods and services has also unfortunately caused a mismatch among employee expectations, with some of the returning employees opting for the stimulus package for the meantime while the opening of establishments is staggered due to covid uncertainties. As the lifting of restrictions continues to accelerate and stimulus payments are eventually discontinued, people will likely move back to their jobs, causing job growth to rise for the rest of the year.  
• On the other hand, it is also potentially a positive indication that the anticipated overheating of the economy is unlikely, therefore allaying worries of a runaway inflation rate. There have been concerns that the increase in average hourly earnings, measured at 0.7% month-on-month, is extraordinarily robust and might contribute to some short-term labor shortage. The payroll gains contributed by the leisure and hospitality sector added 331,000 jobs in April, which may be the start in the service-sector jobs comeback. Manufacturing shaved off 18,000 jobs while transportation and warehousing lost 74,000 jobs. The imbalances show a possible mismatch among the industries, which may eventually correct itself as the economy continues to rebound.  

Metals and Mining

Gold prices continued on their upward trend, during which it tested and breached the critical $1,800 per ounce level last achieved on February 22 and from which it corrected to $1,735 by the end of the month. Gold prices regained their upward momentum in March as the threat from the advancing 10-year Treasury yields and the strengthening US dollar gradually dissipated, fear over the rising inflation rates intensified, and investors’ flight to gold and other precious metals took off. Gold rose as high as $1,837.70 on Thursday, a surge of 5% from its year-to-date low. It is also up 13% year-over-year in the first quarter of 2021. On Friday, it traded at $1,834.73.

Silver corrected from its February year-to-date high for most of the two months that followed. From its interim low of $25.84 by end of April, it shot up to $27.41 in the past week. It ended Friday at $27.37, close to its recent peak. The fundamentals for silver remain positive and are expected to provide buying impetus for the metal for the rest of the year, on the back of increased investment and industrial demand. Platinum and palladium remain strong due to continued forecasted demand. Platinum prices are up 17% year-to-date, selling at $1,246 per ounce on Friday. Palladium prices remained above $2,000 for most of the past year. Since this metal is a key element of car emission systems, the increasingly robust emission standards in the EU and China are likely to sustain demand and push its prices higher. Palladium traded at $2,837.50 on Friday.

Base metals rode the same bullish market as precious metals. Copper pushed above $10,000 per tonne to test its record high of $10,025 on Thursday. It traded at $10.215 on Friday. Zinc also recorded gains by rising to a year-to-date high at $2,959.50 per tonne by midweek. A pullback occurred later in the day, but the metal rallied to Friday’s price of $2,978.50. Nickel began the week at $16,009 per tonne, but surged a further 12% by Thursday. It still needs a ways to go before coming back to its year-to-date high of $19,689 established on February 22. It aimed to test $17,843 by the week’s end. Lead also gained, attaining its year-to-date high of $2,186 per tonne, ending Friday at $2,177.

Energy and Oil

Brent is testing its resistance at $70 per barrel which it approached on Wednesday, but retreated from on Thursday. Demand is still expected to remain strong, however, as the week still closed with a gain. World trends in fuel sourcing continue to move against the use of fossil fuels, however. A recent report released by the United Nations suggests that the global rise in methane emissions in the past 10 years is attributable mainly to the sudden rise in oil and gas drilling, or more specifically, the shale boom in the U.S. The study optimistically foresees, however, that costs related to reductions in methane are actually inexpensive and within achievable targets. Along the same theme, Germany moves up its climate targets as a court decision ordering tougher action prompted the government to raise its 2030 emissions reduction target from 55% to 65%. The country is also advancing its net-zero target from 2050 to 2045.

Natural Gas

There has been a diminution of the viability of LNG import terminals in Europe, prompting utilities to look for alternative uses. Waning demand for LNG is causing companies to turn to other projects such as switching to a hydrogen hub (Unier SE) or transformation to an offshore wind project in Ireland. Movements of natural gas spot prices were mixed for the week (April 28 to May 5). The Henry Hub spot price increased from $2.93 per million British thermal units (MMBtu) at the start of the week to $2.97/MMBtu by the week’s end. This is a reflection of increasingly variable temperatures across the country. Last Wednesday, the New York Mercantile Exchange (NYMEX) contract expired at $2.925/MMBtu. The June 2021 contract price descended to $2.938/MMBtu, a reduction of $0.02/MMBtu for the week. The price of the 12-month strip averaging June 2021 through May 2022 futures contracts slid to $2.977/MMBtu, a drop of $0.01/MMBtu.  

World Markets

European shares ascended on better-than-expected earnings reports and rising investor confidence buoyed by the economic recovery. The pan-European STOXX Europe 600 Index closed the week 1.72% higher, as did the major indexes for the region. German and French stock indexes were lifted by more than 1.5% and Italy’s FTSE MIB Index gained 1.95% over the same period. The UK’s FTSE 100 Index outperformed the others as it rose by 2.29%. The rise in investor sentiment is fueled by the European Commission’s announcement to reopen the EU’s borders once more to tourists from outside the bloc, targeted for sometime in June. Core eurozone bonds slid at the beginning of the week due to the lower-than-expected US manufacturing reports. Overall for the week, however, yields on peripheral eurozone government bonds moved higher.

In Japan, despite a holiday-shortened week, equities at once recorded a gain on reduced concerns about the pandemic. The Nikkei 225 climbed by 1.89% while the broader TOPIX Index matched this increase by a 1.83% gain of its own. The close of the market occurred for the first three trading days in celebration of the Golden Week, which somewhat reduced volatility and limited reactions to the end-of-week gains in other world markets. The improving prospects for global economic recovery and better-than-expected economic data from the US provided investors an incentive to rally the market. The yen remained mostly unchanged against the U.S. dollar at slightly above JPY 109. The yield on the 10-year Japanese government bond dipped slightly to 0.08%

While most global equities were up, Chinese stocks fell also on the back of a shortened trading week. The Shanghai Stock Exchange Composite Index closed lower by 0.8% while the large-cap CSI 300 Index lost ground by 2.5% from the previous Friday. Mainland markets were closed from Monday through Wednesday for the Labor Day holiday, and reopened on Thursday. Consumer stocks outperformed the rest of the market as investors’ buying motivation was fueled by the preliminary data covering holiday sales and travel. Some pharmaceutical companies saw their stock prices descend after the U.S announced a possible waiver of COVID-19 vaccine-related intellectual property rights. This decision is likely to increase competition among several vaccine makers. Meanwhile, the yield of China’s 10-year sovereign bond slid by 3 basis points to 3.17%.

The Week Ahead

During the coming week, vital economic data expected to be released include Retail sales, Inflation data and the Consumer Sentiment Index.

Key Topics to Watch

• NFIB small-business index
• Job openings
• Consumer price index
• Core CPI
• Federal budget
• Initial jobless claims (regular state program)
• Producer price index
• Retail sales
• Retail sales ex-autos
• Import price index
• Industrial production
• Capacity utilization
• Consumer sentiment
• Business inventories

Markets Index Wrap Up

Stock Markets

In the past week, stocks tested record highs on the back of positive earnings reports. Although the major indexes closed slightly lower, the S&P 500, Nasdaq Composite, and S&P MidCap all tested new highs prior to correcting for Friday’s close. A deluge of first-quarter reports elicited reactions from investors, causing volatility in the returns of the different sectors. Providing a major buying motivation is the rise in oil prices to their highest level in six weeks. Within the S&P 500, communication services shares outperformed the rest of the counters as a result of earnings and revenue reports from Facebook and Alphabet (parent company of Google). Microsoft’s earnings report exceeded analysts’ expectations; however, this news appears to have been discounted by the market as the stock fell, causing the technology sector to underperform. Health care stocks also fell as a result of the decline of share prices among several drug manufacturers.

U.S. Economy

The strong earnings reports that flooded the market last week are testimony to the robust economic progress the country has made in recent months. At current levels, the S&P 500 is up by 12% compared to the first four months of 2021. Current fundamentals appear to line up with the continuation of a bull market and investor optimism continues to pick up, according to the following indicators.

• The first-quarter GDP rose by an annualized 6.4%, compared to 4.3% recorded in the last quarter of 2020. The recent two rounds of stimulus packages have provided a boost to the economy simultaneous with the continued progress in the vaccination roll-out. Consumer spending surged by 10.7% representing spending of part of the stimulus check. This development is encouraging, since consumption accounts for 70% of the economy. Business investment also increased 9.9%, as well as government expenditure by 6.3%. A reduction in the GDP, however, was contributed by a drop in inventories and exports as a result of the pandemic.
• There have been many earnings reports that have been released in the past week, but these comprise only slightly more than half of the companies in the S&P 500 listing have released news of their earnings. Of those who have reported, about 87% of the companies have exceeded their expected earnings by at least 24%. As already observed, growth stocks such as communication counters (Apple, Microsoft, and Alphabet) will continue to ride the digitalization trends, but even cyclical businesses are bound to realize substantially higher earnings by a wide margin.
• Even though economic activity and employment have admittedly strengthened, the Fed remained unchanged in its conservative policy. There appears to be no change in sight to slow the rate of asset purchases which is currently at $120 billion per month, or to raise interest rates in fear of an inflation rate increase. The Fed’s updated policy framework currently emphasizes average inflation targeting and defines employment gains broadly and inclusively. Given that scenario, it is unlikely that preemptive policies based on economic projections will be instituted. Instead, those crafting policy will wait for the data to confirm any progress substantively made, allowing more time before adopting any major changes. On the other hand, stimulative fiscal policy will continue to be adopted, enabling further growth in the economy. It is possible, however, for growth rates to peak sometime this quarter.

 Metals and Mining

The price of gold encountered volatility over the past week as it rose during the week to $1,788 per ounce on Wednesday, April 28, and plummeted to $1,755 the day after. Gold was anticipated to rise above its trading pattern over the past four weeks. It lost steam, however, when the newly released economic data prompted an increase in the 10-year Treasury yields, thus reducing the attractiveness of gold as an alternative investment vehicle. Gold ended the week at $1,768.10 per ounce on Friday, April 30.

Silver continued its downward correction that it had trekked for most of April, even as values this week inched closer to $26.50 per ounce. Despite being closely correlated to gold, analysts feel that it may make a move towards $32 by the second semester of 2021, though it may well average $27.30 for the rest of the year. As of Friday, silver traded at $25.99 per ounce.

The platinum and palladium markets were impacted by the disruption of production in Russia’s Norilsk Nickel (MCX:GMKN), providing an incentive to buy up both metals. Platinum rose on Tuesday to $1,246 per ounce before correcting to $1,182 in later trading. Palladium surged to a new record peak of more than $3,000 on Friday; the metal is a primary material used in the manufacture of catalytic converters, a crucial component that reduces emission in automotive exhaust systems. On Friday, platinum traded at $1,202.25 while palladium traded at $2,882.

In the base metals category, copper breached its 10-year high of $9,990 per tonne, and ended the week at that level, The metal has been consistently trending upward throughout April, rising 11.7% over the last month. Zink began trading for the week at $2,862.50 and ended Friday at $2,928 per tonne. Nickel registered the second largest gain among the base metals, increasing by 5.9% in value by Friday to hit $17,433 per tonne. Lead also went up by 2% for the week to close at $2,097.50 per tonne on Friday, with more upside foreseen in the weeks to come.

Energy and Oil

The price of oil rose gradually through the week but saw a correction on Friday due to profit-taking on the gains made. The sell-out was also likely influenced by concerns about the deteriorating situation in India’s covid outbreak. Oil prices rose to a six-week high on Thursday mainly due to positive economic news in the U.S., in the hopes that the improving economy will increase demand in this country. It is hoped that the growing U.S. demand will offset the bearish outlook of demand from India that would tend to lead to a global oil surplus.

In other countries, the EU carbon prices have exerted pressure on the border tariff. Prices have shot up almost to 50 euro per ton, thus increasing the cost burden on polluting industries. The EU is being called upon by the European industry to overseen carbon border adjustments; this is a tariff imposed on imported products originating from places abroad that have weak climate policy. In Asia, China seeks to replicate, at least in part, America’s shale boom. It is developing its substantial shale gas resources to produce sufficient natural gas to meet its growing demand. Many challenges still have to be met, however, before the country can accomplish even a fraction of the U.S. achievement in this field.

Natural Gas

For the week of April 21 (Wednesday) to April 28, the spot prices of natural gas climbed in most regions. The Henry Hub spot price increased to $2,93 per million British thermal units (MMBtu) from $2.65/MMBtu. At the New York Mercantile Exchange (NYMEX), the May 2021 contract expired April 30, up by $0.23/MMBtu for the week at $2,926/MMBtu. The June 2021 contract price rose by $0.18/MMBtu to $2.960/MMBtu over the same period. The price of the 12-month strip averaging June 2021 to May 2022 futures contracts increased by $0,11/MMBtu to $2.990/MMBtu. Meanwhile, at Mont Belvieu, Texas, natural gas plant liquids composite price went up by $0.21/MMBtu, an average of $7.07/MMBtu for the same week. The average weekly price of natural gasoline slid by $0.01, mirroring the price drop in Brent crude oil price, which suffered the same rate of decrease week-on-week.   

World Markets

European shares moved sideways for the week, apparently consolidating after gains in eurozone bond yields caused investors to take profits at close to record high levels. The pan-European STOXX Europe 600 Index closed the week 0.38% down. Major indexes across Europe were mixed. Among those that gained are France’s CAC 40 which rose by 0.18% and UK’s FTSE 100 which grew 0.45%. Those that lost include Germany’s Xetra DAX Index which slid 0.94% and Italy’s FTSE MIB which dipped by 1.00%. Overall, any gains and losses made were minimal as the market did not find any impetus for major moves. Core eurozone bonds, in the meantime, moved higher on speculations that the U.S. Federal Reserve may slow down its bond purchasing program. The release of German inflation data that came out higher than expected also prompted core yields to increase. Yields in the UK and peripheral eurozone bond markets ended higher in tandem with U.S. Treasuries and core eurozone bonds.

In Japan, bourses treaded lower as the Nikkei 225 Index ended down by 0.72% and the broader TOPIX Index fell by 0.87%. The softness in the market became more evident by Friday with the release of worse-than-expected earnings results for some firms trading in the market. The movement also signaled that investors may be adjusting their positions before the Gold Week holiday resumes on May 3-5 when markets close. The yen dipped against the US dollar at JPY 108.9, while yields on the 10-year Japanese government bond gained 0.9%. In China, shares lost ground during the week in view of the government’s crackdown on technology firms. The large-cap CSI 300 Index slid 0.2% and the Shanghai Composite Index dipped by 0.8%. A weaker-than-expected Purchasing Managers’ Index report for April dampened investor appetite for buying. Ahead of the three-day Labor Day holiday, there was little incentive to take a position particularly since some state banks were withholding the release of their 2020 financial results

The Week Ahead

Among the reports scheduled to be released next week are Domestic Auto Sales, the PMI Index, and construction spending.

Key Topics to Watch

• Markit manufacturing PMI (final)
• ISM manufacturing index
• Construction spending
• Motor vehicle sales (SAAR)
• Trade deficit
• Factory orders
• ADP employment report
• Markit services PMI (final)
• ISM services index
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Productivity
• Unit labor costs
• Nonfarm payrolls
• Unemployment rate
• Average hourly earnings
• Wholesale inventories
• Consumer credit

Markets Index Wrap Up

Stock Markets

Overall, during the week, stocks changed little on very light trading volume, the lightest daily volumes so far for 2021. The small caps slightly outperformed the large caps while the Nasdaq Composite Index marginally trailed the broad market. Expanding our perspective. on April 16, the U.S. stock market was poised at a record high. The reasons for the rally appear to be well supported by the robust economic recovery, increase in reported corporate profits, and the release of the new Federal Reserve stimulus. There were some signs of investor anxiety as the S&P 500 dropped during three of the five trading days, although this may be seen as a reasonable correction given that the market has descended only 1.2% from its recent peak. The rapid and steady gains over the past year may be the cause of some jitters at the slightest volatility in the market. Over the past year, the stock market has dropped by more than one percent during only 28 daily trading sessions. There have been only three 5% corrections and none over 10% during the same year. It is therefore possible that a major correction might be forthcoming.

U.S. Economy

While it seems that the bull market will continue in the longer term, there are some challenges that the economy faces as the country moves forward for the remainder of the year. Three factors may continue to create some volatility in the financial markets.

• Tax hikes are likely to occur in the coming months as the government struggles to meet its ambitious spending plans with appropriate sources of funding. President Biden proposes to hike the capital gains tax which has created some ripples in the equity market over the past week. The proposal aims to raise the tax rate to 39.6% over the present 20% for those earning $1 million per annum. This is joined by a proposal to raise the corporate tax rate to 28% from the current 21%, reversing in part the tax cut instituted in 2018.
• Inflationary pressures continue to exist, although it is not expected to reach the inflation levels of the seventies. Although the current inflation trend is flat, the combination of supply-chain disruptions and rising demand will likely tend to pull consumer prices higher. The occasional spikes that are bound to take place will not catch the market off-guard, however. After a temporary jump, the market will adjust due to the year-on-year comparison period. What is likely to take place is that inflation will subside as a result of the more sustained economic reopening, a return of supply in the services sector, and a developing slack in the labor market.
• So far, three asset bubbles show signs of developing, in particular Reddit stocks, cryptocurrencies and non-fungible tokens of NFTs. Sudden surges in the prices of these assets have attracted investor attention, causing prices to rise further. These packets of market interest have so far been supported by excess liquidity. Past bubbles involving the dot-com stocks resulted from overvaluations and unsustainable price acceleration throughout the stock market. This does not appear to be the case presently, and it is doubtful that the potential bubbles in these assets will spark another widescale shock in the financial markets.

Metals and Mining

Gold continued onto its third straight week of gains particularly as the rallies by the US 10-year Treasury yields and the American dollar lost steam and entered into consolidation. Further fueling the rise of gold prices were concerns over U.S. President Biden’s planned tax hike and the scheduled meeting of the U.S. Federal Reserve. Gold reached a four-week high of $1.796.50 per ounce by Wednesday, April 21, from $1,775.90 the week prior. Thursday saw a price pullback to $1.780, leading to a Friday close at $1,772.47. The metal may resume its uptrend should inflationary pressures continue to firm up.

Silver likewise followed the volatility of gold prices, with silver impacted by the movement of Treasury yields and currency fluctuations. It rallied to $26.62 per ounce on Wednesday from $25.84 on Monday, then retracing to end the week at $25.88. Silver is expected to register gains by the year’s end, according to the annual World Silver Survey. Palladium rose to an all-time high on Friday at $2,875 per ounce but corrected to $2,762, while platinum closed the week at $1,223 per ounce.

Base metal prices moved sideways for the week. Copper prices remained flat for the week, beginning at $9,415 per tonne and closing the week at $9,475.50. Nickel succumbed to some pressure throughout most of the week. While rising demand appeared to be pushed by electric vehicle manufacturing and stainless steel production, additional production from Indonesia may reduce the impact of the added demand. Nickel traded at $16,009 per tonne by the close of the week. Zinc and lead likewise shed some value, with zinc closing on Friday at $2,805 per tonne and lead at $2,017.

Energy and Oil

Oil prices continued sideways for the week, buoyed by the growing optimism in the US and European markets but pressured downwards by the downside risks that prevail particularly in India. The massive sub-continent posted record-setting Covid-19 cases day after day, setting off speculations that demand for fuels may plummet by 20% in April as a result of the lockdowns extending anywhere from a few weeks to two months.

In other related news, U.S. President Joe Biden pledged at the climate Summit on Thursday to cut down greenhouse gas emissions by 50-52% by the year 2030. Canada raised its target from the previous 30% to 40-45% cut while Japan also raised its commitment to 46% cut from a previous 26%. In the meantime, oil supermajors have committed to making billions of dollars in low-carbon energy investments and pledged to realize net-zero goals over the next ten years. Their shed assets are however being snapped up by smaller oil and gas companies.

Natural Gas

The residential and commercial demand for natural gas increased significantly week-over-week, pushing the price of natural gas in most markets upwards. From April 14 to 21, the Henry Hub spot price increased by $0.05 from $2.60/MMBtu to $2.65/MMBtu from a weekly high of $2.69/MMBtu on Tuesday. The residential and commercial sectors continue to lead to an increase in U.S. natural gas consumption.

Globally, the demand for natural gas was weaker than expected based on the forecast for industrial demand and the onset of warm weather. This has led to month-end inventories at 1.78 trillion cubic feet which exceeded the anticipated level, erasing the inventory deficit relative to the five-year average. However, despite the lull in demand, it was observed that there is an ongoing ramp-up in the production of natural gas after an 18-month slowdown. This is according to proclamations by Rystad Energy and the Bank of America, predicting strong production gains over the next three years.

World Markets

The European stock market dipped on concerns of an increased coronavirus case load and the chances that the anticipated economic recovery will be impeded. The dismal sentiment overshadowed the strong corporate earnings reports. The pan-European STOXX Europe 600 Index ended moved slightly southward for the week by 0.78%, even as major benchmark indices followed suit. Italy’s FTSE MIB registered the largest dip at 1.45%, followed by Germany’s Xetra DAX Index at 1.17% down, and France’s CAC-40 Index at 0.46%. The UK’s FTSE 100 Index likewise pulled back by 1.15%.

The core eurozone bond yields initially rose early in the week on optimism regarding the rollout of the vaccines. The sentiment shifted, however, when Christine Lagarde, president of the European Central Bank, announced that it was preemptive to withdraw the stimulus. This resulted in a fall in the UK gilt yields, mirroring the U.S. Treasury yields. The movement in the Fed yields coincided with volatility in the equity markets and the presidential announcement that taxes will be raised on higher-income earners.

In Japan, worries about the coronavirus continued to weigh on the markets. A brief rally on Thursday was overtaken by negative sentiments that dominated throughout the week and across all sectors. The Nikkei 225 Index lost more than 650 points for the week, briefly breaking down below the 29,000 mark before it somewhat recovered and finished at 29,020.63, 2.2% lower than the previous week’s close. The broader TOPIX Index also closed lower. The yen lost ground to the U.S. dollar, transacting at slightly below JPY 108 on Friday. The yield of the benchmark 10-year Japanese government bond proved to be more resilient, ending the week at 0.069% lower than last week’s close. The coronavirus concerns were spurred by the report of nationwide daily infections exceeding 5,000 for the first time in three months, prompting Japan’s Prime Minister Yoshihide Suga to declare a state of emergency in several prefectures.

On the Chinese front, the CSI 300 Index that tracks large-cap issues rose by 3.4% for the week, and the benchmark Shanghai Composite Index went up by 1.4%. Beginning Monday, Chinese stocks advanced steadily even as mainland equity markets received inflows from Hong Kong via Stock Connect totaling $2.5 billion. This was the third-largest single-day inflow from Hong Kong investors. The positive investor sentiment is credited to the issuance of new rules from China’s financial regulators. After the close of the market on April 16, the country’s Security Regulatory Commission (CSRC) announced the adoption of several new market reforms. One of these reforms is a commitment to curb the unregulated expansion of fintech firms. Amendments were also made to the requirements companies have to fulfill to qualify for listing on Shanghai’s Star board, China’s equivalent for the Nasdaq exchange.

The Week Ahead

Next week, important economic reports scheduled to be released include GDP, the inflation deflator, and personal income and expenditure.

Key Topics to Watch

• Durable goods orders
• Core capital goods orders
• Case-Shiller home price index (year-over-year)
• Consumer confidence index
• Homeownership rate
• Trade in goods, advance report
• Federal Reserve announcement
• Fed Chair Jerome Powell press conference
• Initial jobless claims (regular state program)
• Gross domestic product (SAAR)
• Pending home sales index
• Employment cost index
• Personal income
• Consumer spending
• Core inflation
• Chicago purchasing managers’ index
• Consumer sentiment index (final)

Markets Index Wrap Up

Stock Markets

The markets have completed their fourth consecutive week of gains and have now moved to challenge their record peaks. The large and mid-cap benchmarks surged ahead while the technology-based Nasdaq Composite Index and small-cap Russell 2000 Index lagged slightly, although they stayed close to their highs of the past trading weeks. Within the broad S&P 500 Index, the health care sector performed strongly, followed by insurance stocks; in the mining sector, the rising gold and copper prices boosted the performance of company shares. On the other hand, energy shares retreated late in the week but eventually ended flat.

The start of earnings season was behind the positive market sentiment, as 22 companies listed in the S&P 500 were scheduled to release their first-quarter results. Wednesday saw the release of first-quarter earnings reports by the major banks Wells Fargo, JP Morgan, and Goldman Sachs.  The positive sentiment also appears to be pushed by the announcement by Pfizer that it could deliver 10% more vaccines by the end of next month, as well as more encouraging news from Moderna.

U.S. Economy

Positive economic news provided the markets with incentives to move further northward. The retail sales for March reported on Thursday achieved a growth rate of 9.8%, the fastest the indicator has grown since May of last year. The gains were generated over a wide range of economic activity, reflecting the accelerated reopening of retail stores and restaurants. It also included recovery from the 2.7% February pullback due to the unexpected extraordinarily cold weather.

• Manufacturing data released during the week was also better than expected by most investors, including news of mid-Atlantic factory activity reported at its highest level in almost 50 years. Regarding unemployment figures, the weekly jobless claims stood at 576,000 which is a new pandemic low and which is much lower than expected. Assessment of consumer sentiment by the University of Michigan was at its best since the beginning of the pandemic, although it underperformed somewhat compared to consensus expectations.
• On inflation data results, there was a slight increase in consumer prices for the month of March, by 0.6%. Core prices (which excludes food and energy) rose by 0.3%; both core and consumer prices are moderately higher than consensus expectations. There was a dramatic increase in car rental prices as reported in the Wall Street Journal, reflecting firms’ efforts at rebuilding fleets impacted by slowed auto production. The latter, in turn, appears to be the repercussion of the global chip shortage. Concerns about the possible rising inflation rate may have been quelled somewhat by policymakers’ announcement that they expect inflation to move slightly above 20% for some time.

 Metals and Mining

Gold prices moved higher as bond yields soften and the US dollar declined, encouraging flights to safety. The price of gold increased by 2.4% from its Monday opening value, reaching $1,736.50 per ounce. The upward move appears to be a correction from the previous downtrend, recovering losses the saw the price of gold below the $1,700 per ounce level in the past month. It is possible for gold to move higher, given that the 10-year Treasury yields continue to encounter resistance. Yields pulled back and penetrated the 1.6 percent crucial support level, signaling greater weakness in the fixed income instrument at least for the short term. Gold ended Friday midday at $1,779.75.

Silver followed gold upward during the second week of April, but although it rose above the critical $26 per ounce, silver is still more than $2 lower than its year-to-date high. Early in the first quarter, the strong investor interest drove the price to $28.55, but this level proved unsustainable. On Friday, silver traded at $26.04 per ounce towards midday. In the meantime, both platinum and palladium rose during the week on the back of a positive economic outlook and heightened emissions standards for automotive metals. Friday valuations saw platinum at $1,198 per ounce while palladium traded at $2,668 at the week’s end.

Base metals attained overall significant gains for the week, encouraged by China’s economic recovery and industrial growth. It appears that the metal prices broke out of their consolidation formations on the upside. However, nickel and zinc remained range-bound. Copper ended the week higher by 3% from its Monday value of $8,901 per tonne. Zinc modestly increased to $2,809 on Friday from $2,759 at the session’s opening. Nickel was the only base metal to fall after its strong start, falling from $16,220 to $16,049 on Friday. Zinc also fell while lead moved up slightly. Zinc closed at $1,984.50 per tonne from $1,948.50

Energy and Oil

Due to the improvement in its demand forecast, oil gained for the week. The demand profile stayed strong despite the rise in Covid cases and the proliferation of travel restrictions. The EIA increased oil demand forecasts for 2021 by 230,000 bpd, noting the fresh round of US stimulus spending and the improvement in the vaccination rollout. In the meantime, the large oil and gas companies aim to sell off a combined $110 billion in assets mainly for the purpose of debt liquidation. They may encounter problems in finding a good price, however, as the current economic environment is not ideal for asset disposal.

The trend in oil and gas investments around the world appears anchored on environmental, social, and governance (ESG) factors. A large proportion amounting to 80% of global investors, particularly those based in Hong Kong, China, Singapore, and the UK believe in the importance of environmental and ethical issues, while currently only about 60% are invested in ESG factors. Data suggests that future investment acquisition may be linked to ESG considerations.

Natural Gas

The largest natural gas driller in the US is pushing for stricter methane limits and is supporting Congressional efforts to repeal the rollback on the limits to methane production established by the previous administration. During the past week, natural gas spot prices climbed higher at most locations during the week April 7 to April 14. There was an increase in Henry Hub spot prices, from the $2.38 per million British thermal units (MMBtu) on Wednesday the week before to $2.60/MMBtu last Wednesday. The price of the May 2021 contract at the New York Mercantile Exchange (NYMEX) rose by $0.10, from $2.520/MMBtu to $2.618/MMBtu for the week in review. The 12-month strip averaging May 2021 through April 2022 futures contract is priced higher by $0.09/MMBtu, ending at $2.835/MMBtu.

World Markets

In Europe this past week, shares rose on optimism that a strong global economic recovery is around the corner, together with the hopes of strong corporate earnings in spite of an increase in coronavirus incidences. The pan-European STOXX Europe 600 Index registered its seventh straight week of continuous gains. During the past week the Index rose by 1.20%, while France’s CAC 40 increased by 1.91%, Germany’s Xetra DAX Index gained 1.48%, and Italy’s FTSE MIB advanced by 1.28%. The UK’s FTSE 100 Index climbed 1.5% for the week.

The core eurozone bond yields inched upwards, with investors selling their existing bonds to prepare to take advantage of long-dated issues from a number of eurozone member states. It is expected that by the second quarter, Europe will be on the verge of receiving more vaccine supplies, propelling yields higher. However, upon U.S. imposition of additional sanction on Russia, yields corrected slightly lower. The core markets were tracked by yields in peripheral European economies for the week.

In Asia, China’s Shanghai Composite broad market index of A-shares suffered a 0.7% correction over the past week. The CSI 300 large-cap index fell 1.4% indicating a price dip in most technology stocks. The release of key Chinese economic data on Friday lifted markets in China and in the Asia region. The volatility in the market appeared to signal that mainland investors were uncertain a stronger GDP report will usher more liquidity tightening or if the underperformance of the industrial production sector may make authorities wary of taking more drastic regulatory measures. After a working paper from the government proposed fully lifting restrictions on family size, consumer stocks experienced a robust uptick.

Japan’s bourses were mixed for the week. The Nikkei 225 Stock Average dipped by 0.6% and the broader TOPIX also lost 0.3%, ending the trading session marginally lower. The yen lost ground against the dollar, closing the week in the upper JPY 108 level. The benchmark 10-year government bond yields finished slightly lower at 0.085%. A positive earnings outlook sustained the markets, and while the surging coronavirus cases continue to cause some concern, the markets appear to discount somewhat the effects of sustained outbreaks on the economy. Toward the week’s end, the Bank of Japan issued a cautiously optimistic economic outlook as the local business environment may be buoyed by the foreseen rise in global demand.

The Week Ahead

Among the important economic that are expected in the coming week are the Leading Economic Indicators (LEI) index and the PMI composite.

Key Topics to Watch

• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Existing home sales (SAAR)
• Leading economic indicators
• Markit manufacturing PMI (flash)
• Markit services PMI (flash)
• New home sales (SAAR)

Markets Index Wrap Up

Stock Markets

While the small-cap Russell 2000 Index registered a minor loss, most of the benchmark indexes surged to record highs. Although the broad-market S&P 500 Index gained 2% over last week’s close, it was outperformed by the Nasdaq, which tracks mostly technology counters. Despite its strong showing, the Nasdaq fell short of its February peak. Within the S&P 500, technology shares led the rest of the stocks due to stellar performances by Apple and Microsoft accounting for about 40% of the sector’s market capitalization. Coming second are casino and cruise line shares which also registered strong gains. Lagging the market are energy stocks due to the oil price pullback earlier in the week. Value shares were outperformed by growth stocks, which narrowed the year-to-date performance gap.

U.S. Economy

Investor optimism about the recovering economy continued to move the markets this week. The bull market is quite young, however, therefore, there is substantial speculation about what developments in the economy will continue to push the indexes upward.

• One reason for the bull market to advance is the improving labor-market situation during a post-covid scenario. Over the past year, the unemployment rate has already fallen by 9%, higher than the 6.5% record unemployment decline within the period October 2009 to February 2020. Looking at the larger picture, however, the deep slide comes after the extraordinary pandemic situation that put a record number of people out of work within a short time. The current unemployment figure of 6% is still historically high, and the weekly initial jobless claims increased in the past week, indicating the need to maintain caution in forecasting the future trend.
• The earnings yield on stocks relative to the benchmark 10-year Treasury rate still stands at slightly below 3%, the lowest level since 2018. This is due to two continuing trends – the increase in interest rates and rising stock prices. The receding trend in earnings compared to bond yields is an indication that investors are being compensated less for assuming the risk of investing in equities compared to investing in the much safer Treasury yields. The bull market remains intact, but equities will likely see more moderate returns in the future.
• Although the economic recovery will proceed unhampered, it may face challenges in the fiscal and monetary policies proposed by the current administration. The proposed $2 trillion infrastructure bill will raise the pandemic stimulus higher than 30% of GDP, with accompanying tax hikes as revenue-raising measures to fund the federal deficit. This may undermine the earnings growth rate next year while leaving this year intact. There may also be occasions for Fed rate hikes in attempts at monetary policy tightening, in response to possible inflation rate hikes, although the Fed reiterated in the past week that it will maintain an accommodative policy to further drive the present economic expansion.

Metals and Mining

In the past week, gold reached $1,757 per ounce, its peak over the last four weeks and a welcome development over a dismal March performance. The rally is a reaction to the weaker US dollar and falling 10-year Treasury yields. The metal opened the week by descending to a six-month low of $1.721 on Monday, then rising sharply to breach the $1.750 threshold on Thursday. Gold prices corrected to $1,745 when the dollar and yields began to recover. It traded Friday at $1,747.23. Silver, on the other hand, sold at $25.23 per ounce on Friday.

Platinum traded with some volatility over the week, opening on Tuesday at $1,194 per ounce then soaring to $1,239 at the end of the trading day. By Friday, platinum slid to $1,191, then traded at $1,194 by midday. Palladium climbed to $2,600 per ounce, a year-to-date high, during the week before it later corrected to $2,548 by midday on Friday.

Mirroring the upward movement of precious metals, base metals also rose earlier in the week before corrected towards the week’s end. Copper rose above $9,000 per tonne, rallying from $8.768 at the start of the week. The price swing was reflective of the metal’s stores in London’s warehouses. It reached $9,104, its peak in two weeks. But steady deliveries of copper into LME warehouses brought prices lower by Friday to trade at $8.947.50.

Zinc rose 2.2% during the week and surged to $2,813 per tonne on Tuesday, later on to $2,825. The furtherance of the rally sent it to trade Friday at $2,827.50. Nickel gained 5%, climbing from $16,001 per tonne on Monday to trade at $16,828 on Thursday, only to slide back to $16,595 on Friday. Lead increased by $20 and held at $1,969 per tonne at the end of trading.

Energy and Oil

Oil prices are expected to register a loss for the week following significant trading volatility. Speculation was fueled by concerns between tightness in the market and the expectations of increasing demand, confounded by lockdown measures to arrest the continued spread of covid cases. Continued uncertainty dogged the ultimate fate of the Dakota Access Pipeline as the Army Corps of Engineers was scheduled to appear in court to continue to litigate the matter on Friday. The pipeline remains open pending a more thorough environmental assessment.

In the meantime, the industry appears to make a move towards more sustainable energy. Oil majors are making bids for offshore wind auctions in the North Sea, crowding out big developers by pushing auction prices upward. The EPA likewise announced its proposal for new car and light0duty truck fuel economy standards by the end of July. The EIA also lowered its 2022 forecast for U.S. oil output by 100,000 barrels per day, estimating an average of 11.04 million bpd compared to last month’s estimate of 11.15 million bpd after the Texas grid crisis.

Natural Gas

As temperatures climbed to more moderate levels across the nation, natural gas spot prices dropped at most locations from March 31 to April 7. The Henry Hub spot price dropped to $2.38 per million British thermal units (MMBtu) on April 7 from $2.49/MMBtu one week earlier.

The price of the May 2021 contract at the New York Mercantile Exchange (NYMEX) slid by $0.09 to $2.520/MMBtu from $2.608/MMBtu for the week. The 12-month strip averaging May 2021 through April 2022 futures contracts price fell $0.03/MMBtu to $2.750 /MMBtu.

World Markets

Growing optimism that a global economic recovery will be brought about by the infusion of fresh fiscal stimulus and supportive central bank policies was the catalyst of price increases in European stocks in the past week. The pan European STOXX Europe 600 Index closed the week’s trading with a gain of 1.16% in local currency terms. The major stock indexes were mixed, with France’s CAC 40 gaining 1.09% and Germany’s Xetra DAX Index also rising 0.84%. Italy’s FTSE MIB, on the other hand, lost 1.14%. UK’s FTSE 100 Index grew by 2.65% due to the weaker currency. The UK pound lost ground on the back of worries concerning vaccine supply, coinciding with technical profit-taking after a strong first quarter. When the pound falls, the UK’s equities rise since many of the FTSE 100 listed companies generate their revenues abroad.

Japan’s Nikkei 225 Stock Average broker through the 30,000-resistance level early in the week. The strong opening was followed by more moderate trading as the Nikkei 225 corrected slightly by the week’s end. The broader TOPIX also closed slightly lower. The yen rose against the U.S. dollar to end the week at the high JPY 109 bracket. The benchmark 10-year government bond yields lost some ground to close just above 0.10%. Meanwhile, in China, stocks fell for the week in a continuation of the bourse’s underperformance against the world markets. The large-cap CSI 300 dipped by 2.4% and the benchmark Shanghai Composite Index gave back 1.0%. Despite positive corporate earnings, rising inflation and increased U.S.-Sino tensions caused investor sentiment to weigh heavily on the market. Conversely, the fixed income market was buoyed as the yield on China’s 10-year bond rose marginally to close at 3.21% in light of the optimistic prospect of continued economic recovery.

The Week Ahead

The important economic data scheduled for release in the coming week include manufacturing production, retail sales growth, and an inflation update.

Key Topics to Watch

• Federal budget
• NFIB small-business index
• Consumer price index
• Core CPI
• Import price index
• Beige Book
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Retail sales
• Retail sales ex-autos
• Philadelphia Fed manufacturing index
• Empire state manufacturing index
• Industrial production
• Capacity utilization
• Business inventories
• National Association of Home Builders index
• Building permits
• Housing starts
• Consumer sentiment index (preliminary)

Markets Index Wrap Up

Stock Markets

The strong first-quarter performance for equities ended with the holiday-shortened trading week. Markets were closed for trading on Friday in observance of Good Friday. On Thursday, the large-cap S&P 500 index traded above the 4,000-point resistance level for the first time in history. The S&P MidCap 400 Index likewise set a new record for intraday trading. The Nasdaq Composite index, which tracks mostly technology counters, led the advance due to gains in a broad range of hardware and semiconductor stocks and was helped by a rally in Facebook shares. Consumer confidence reached its highest level since the pandemic broke out, and there was an expansion in manufacturing activity for March, recording the fastest growth rate in the last four decades. Lagging the market were the consumer staples and materials sectors within the S&P 500. Also, for the first time since January, growth stocks significantly outperformed value shares.

U.S. Economy

Driving the stock trades in the past week were worries about contagion in the financial markets, particularly regarding hedge funds, being superseded by optimism about the upcoming infrastructure spending. Investors turned their attention to the increase in bond yields and the anticipation of accelerated economic growth. The infrastructure plan unveiled by the administration on Wednesday indicated that spending will be dramatically increased on internet and transportation infrastructure. Research and development projects will also benefit greatly from the spending plan estimated at $2.25 trillion. While experts believe that the proposed spending package is at the low end of the range of estimates, it was clarified that a second package is likely to be announced this month. The additional expenditure targets health care, child care, and education.

• The plan does not yet provide for an increase in taxes on wealthy individuals, although it does include a tax hike for the top corporate tax rate to 28% from the current 21% to offset the cost of the spending bill in the next decade and a half. The measure also provides an increase in the global minimum tax rate from 13% to 21% with a mandate for multinational firms to pay the U.S. tax rate. The proposal likewise ends federal subsidies on fossil-fuel firms.
• The administration indicated its openness regarding how the infrastructure plan is to be funded, to woo bipartisan support for the bill. The chances are low, however, that Republicans will support suggestions for a tax hike. In light of the negotiations that will follow prior to the bill being passed, significant changes may be made to the bill
• An increase in the corporate tax rate may result in a sudden drop in corporate earnings, although this is expected to be a one-time occurrence and eventually will have little impact on investors’ stock valuations. Once discounted, the tax hikes may be accompanied by higher consumer spending and therefore higher revenues for listed corporations, for as long as the economic environment remains positive.

Metals and Mining

The trading week for metals ended on Thursday, April 1, as markets were closed for the Good Friday holiday. On Thursday, gold rose by slightly more than 1% spurred mainly by a retreat in U.S. bond yields. Simultaneously, a negative U.S. jobless report showed that the number of Americans filing new claims for unemployment benefits surged above expectations. This tempered the optimistic outlook of an eventual economic recovery, further enhancing the appeal of the yellow metal as a safe-haven investment particularly in light of the administration’s $2 trillion spending plan that has sparked inflationary concerns. Spot gold prices rose 1.2% to $1,727.86 per ounce at about 1:39 p,m. EDT, while gold futures settled at $1,728.30, 0.7% up. Silver rose to $24.89 per ounce, up 2.1%. Platinum ended at $1,208.42, up by 1.8%, while palladium climbed to $2,651.79, up by 1.3%

Energy and Oil

OPEC+ decided to increase production by more than 2 mb/d in the coming months. There is a projected 350,000-bpd increase each in May and June and a 450,000 bpd in July. Simultaneously, Saudi Arabia announced that it will ease its voluntary 1 mb/d cut, implying that it will likely keep production at current levels. Rather than push prices downward on the prospect of increased supply, investors interpreted the bearish move as an indicator that demand is expected to grow. This pushed prices up as investors felt confident that the rise in demand will be met by added supply without the probability that a surplus will develop.

Despite Biden’s declaration that the new infrastructure plan will favor clean energy over fossil fuels, it appears that the plan will also call for higher demand for asphalt, which is likely to prop up demand for heavy crude blends. On the other hand, the demand for oil may likely take a hit from a new round of lockdowns in Europe and the slowdown of the vaccination roll-out. Furthermore, California is poised to add 1.7 GW of energy storage in 2021, which will be sufficient to power 13 million homes. The batteries are expected to help reduce blackouts in the summer.

Natural Gas

During the report week (March 24 to March 31), natural gas spot prices moved upward at most locations. The Henry Hub spot price climbed from $2.45 per million Brutish thermal units (MMBtu) to close the week at $2.49/MMBtu. The April 2021 contract expired Monday at the New York Mercantile Exchange (NYMEX) at $2.586/MMBtu which is $0.07/MMBtu higher than Wednesday the week before. During the same period, the May 2021 contract rose by $0.04/MMBtu to $2.608/MMBtu. The 12-month strip averaging May 20201 through April 2022 futures contract price rose to $2.782/MMBtu, an increase of $0.04/MMBtu. There is a depletion of European gas storage, which could create shocks in the global gas market later in the year.

World Markets

During the holiday-shortened trading week, European shares climbed to a near-record high on continued positive news of a speedy and robust economic recovery. The announcement of a massive U.S. infrastructure spending bill has calmed worries of the probability that lockdowns will prevail in Europe over a longer-than-expected period. The pan-European STOXX Europe 600 Index closed 2% higher for the week. France’s CAC 40 and Italy’s FTSE MIB mirrored Europe 600’s rise, and Germany’s Xetra DAX Index outperformed them by rising about 3%. The FTSE 100 Index of the UK moved sideways with little change.

Core eurozone government bond yields finished higher across the board, They initially rose in tandem with U,S, Treasuries early in anticipation of more U.S. fiscal stimulus and the progress of the vaccination roll-out. Inflation quickened in the eurozone’s 19 countries, registering at 1.3% in March from 0.9% in February. Higher prices of energy and non-processed food prices led to the increase based on official flash estimates. The European Central Bank acknowledges the likelihood of a temporary spike in inflation, after which it will then slow to below the 2% target rate in the long term.

Turning to the Asian stock markets, the Japanese equities began the week’s trading on a high note on the back of bargain hunting by investors after the market declined sharply last week. Investor sentiments also rose due to expectations of the $2.25 trillion infrastructure spending bill announced by the U.S. on Wednesday. The market retraced its gains by midweek, however, due to the release of disappointing economic results and the announcement that Japan’s new coronavirus cases surpassed 10,000 for the first time. A rebound was seen on Thursday, however, prior to the market’s close, in pace with the heavy gains in the Nasdaq index. The benchmark Nikkei 225 Stock Average ended up by 0.7% for the week while the broader TOPIX closed about 1% lower.

Ahead of the long weekend, Chinese stocks ended strong as investors were heartened by the announcement of an additional tax reduction of RMB 550 billion aimed at consolidating the economic recovery. Also among the positive news is the strong March purchasing managers’ index data and the more robust performance of the U.S. and other world markets. From Friday last week to the close on Thursday, the CSI 300 and Shanghai Composite both climbed by 1.4%. Reports of new covid cases remain small at 16 on Wednesday, ten of which were imported and six local. If China’s aim to vaccinate 40% of its population by the end of June is achieved, this may signal a strong recovery in the business and consumer services sector, particularly food and entertainment.  

The Week Ahead

The important economic data to be released in the coming week include the trade balance, durable good orders, an inflation update, and the PMI composite.

Key Topics to Watch

• Markit service PMI (final)
• ISM services index
• Factory orders
• Job openings
• Trade deficit
• FOMS minutes
• Consumer credit
• Initial jobless claims (regular state program)
• Continuing jobless claims (regular state program)
• Producer price index
• Wholesale inventories

Markets Index Wrap Up