Bassanese Bites: Sweet spot – April 19 2021

Global markets

Another week, another rise in global equities it seems – helped on by ongoing solid economic growth and, most recently, a reassuring pullback in global bond yields. Indeed, last week’s much anticipated U.S. consumer price index report came and went without a murmur from the bond market. While annual growth in headline consumer prices pushed above 2% as expected (reflecting the rebound in oil prices over the year), core inflation (excluding food and energy) lifted only modestly from 1.3% to 1.6%. Also reflective of better bond market sentiment, a series of U.S. Treasury bond auctions last week attracted solid interest.

Note the easing in bond yields came despite continued unquestionably strong economic data, with U.S. weekly jobless claims dropping to 576k (market expectations 700k) and (thanks to stimulus cheques and better weather) March retail sales bouncing back much more than expected. In the first peek at April data, the Philadelphia manufacturing index (the ‘Philly Fed Index’) spiked to its highest level since 1973!

One cloud on the horizon was new question marks over vaccines, with some countries pausing their rollout to further investigate cases of blood clotting. While clotting appears very rare (6 U.S. reports out of 6.8m vaccinated, or 0.0001%), the U.S. at least wants to establish who might be most vulnerable and what are the best procedures to deal with this side-effect. But if this was a reason for the decline in U.S. bond yields last week, it certainly did not stop Wall Street setting new records.

Last but not least, the U.S. Q1 earnings reporting season has started off well – with major banks beating expectations. In terms of the week ahead, developments on the vaccine front will be keenly watched while the U.S. earnings season also steps up in earnest, with leading companies such as Netflix and IBM reporting. U.S. April service and manufacturing indices are also released, and are expected to remain at very high levels.

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