Weekly market update - 13th of April 2021
Written and accurate as at: Apr 13, 2021 Current Stats & Facts
Markets remain supported by strong economic data. The S&P 500 gained 2.76% last week as mega-cap stocks staged a comeback of sorts, while the S&P/ASX 300 was up 2.52%.
Covid-19 and vaccines outlook
Concerns over the impact of a new wave of cases on lockdowns and restrictions appear to have stabilised. Sentiment has been helped by the vaccination program (now running at 3 million new doses daily) and record highs printed in economic indicators. Hospitalisation rates remain under control.
New daily cases in France and Germany continue to improve. But their vaccination programs continue to run well below that of the UK and US. Almost half the UK population has now received one dose. In the US it’s 35% and in Germany 15%.
Economics and data
The March US ISM Services index came in at 63.7, up from 55.3 in February. This is a record high and reflects the impact of stimulus payments. It is yet another indication that the US economy is running hot.
The Fed continues to jawbone the market, attempting to convince all that they won’t change tack and raise rates in response to near-term inflationary pressure. At this point, the market is giving it the benefit of the doubt. As a result, US bonds remained stable — 10-year Treasury yields fell 1bp. The Australian equivalent fell 8bps to 1.76%.
The RBA provided commentary on housing. We remain mindful of the risk of macro-prudential measures, particularly for the bank sector. These do not appear imminent given current data on low investor participation and relative affordability.
Markets
The US dollar index (DXY) weakened slightly last week while most commodities were up. Iron ore rose 3.7%, copper 1.2% and gold 1%.
Despite oil inventories reaching six-week lows, Brent crude fell 2.9%, following OPEC’s decision to increase supply gently. It is up 21.5% for the calendar year-to-date.
One key consideration at the moment is the changing shape of the rotation thematic within the equity market. With most markets having a reasonable run in the last 12 months, the constituents of the “momentum” and “value” buckets have changed quite materially over the last quarter.
Generally, the (non-materials) cyclical stocks used to be the considered “value” have now become the momentum stocks. This could be yet another material shift in the market drivers. There is a high degree of uncertainty, emphasising the importance of having a balanced, non-binary approach to portfolio construction in this environment. A combination of stabilisation in treasuries and a moderating rotation in the market was generally supportive for equity indices in aggregate.
Only eight stocks in the ASX100 fell last week. AMP (AMP, -4.9%) fell furthest as the company announced the CEO’s departure following weeks of speculation. Disappointment in the effort to realise value via asset sales seems to be a key factor.
Chemical and explosives company Incitec Pivot (IPL, -3.8%) fell after management announced its Wagaman ammonia plant in the US would be offline for longer than expected. Earnings downgrades were in the order of 10%.
Afterpay (APT, +15.1%) was the best performer in the ASX 100, consistent with the better performance from large-cap tech growth stocks in the US. This reflects a view that the recent thematic rotation may have run its course for now. Xero (XRO) gained 6.1%.
Other growth stocks such as Seek (SEK, +8.8%), REA Group (REA, +8.7%), and Carsales.com (CAR, +6.9%) caught a bid.
Gold miners Northern Star (NST, +11.2%), Evolution (EVN, +9.1%) and Newcrest (NCM, +6.6%) benefited from a shift back into more defensive areas.
Cleanaway (CWY, +12.3%) made a bid for the Australian-based assets of global waste management group Suez. Suez is subject to a hostile takeover bid on the Paris bourse, which complicates the deal. Nevertheless, the market responded well to potential domestic industry consolidation.
It is worth noting the scale of mergers and acquisitions activity in the market. Globally, M&A activity is running at about US$900 billion in 2021. This is already higher than the total for any year in the past two decades. We suspect there is plenty more to come in 2021 as confidence in the recovery grows.