April 30, 2021 Portfolio Results and Market Commentary
The S&P 500 reached a record high of 4,218.78 and ended up for the fifth week in six, fueled by the Federal Reserve's commitment to keep its foot on the gas, upbeat earnings from mega-caps along with bullish economic data.
Though month-end profit-taking faded most of this week's gains, the benchmark index ended the week at 4,181.17, a gain of 0.02% from the prior week's close of 4,180.17. The index ended April with a gain of 5.2%.Though month-end profit-taking faded most of this week's gains, the benchmark index ended the week at 4,181.17, a gain of 0.02% from the prior week's close of 4,180.17. The index ended April with a gain of 5.2%.
The Federal Open Market Committee meeting on Wednesday gave stocks a boost as Fed Chair Jerome Powell's uber-dovish stance in the face of simmering inflationary pressures and outsized economic growth nudged the index above 4,200.
"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened [and] the sectors most adversely affected by the pandemic remain weak but have shown improvement," the FOMC said.
In Washington, US President Joe Biden outlined his $2.3 trillion American Jobs and $1.8 trillion American Families Plan, pledging to pay for the unprecedented fiscal stimulus with higher taxes on Americans making more than $400,000.
Of the 11 S&P 550 sectors, consumer staples, health care, and technology ended the week lower. The energy sector was the biggest percentage gainer with a move of +3.6% corresponding to a 2% gain in West Texas Intermediate futures. Within the energy sector, shares of NOV Inc (NOV) were driven 12.5% higher from last week as the expectation for a rebound in equipment bookings overshadowed a second consecutive miss in quarterly earnings. Exxon Mobil (XOM) which reported better-than-expected results on Friday, gained 3% this week with a tailwind from rising commodity prices.
Despite impressive results from component stocks Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL) and Microsoft (MSFT), the technology sector was the biggest percentage decliner for the week.
Seagate Technology (STX) took the top spot with a gain of 4.1% as the company beat both Q1 earnings and revenue expectations. Seagate's strong performance wasn't enough to keep the sector in the green, leaving it 2.1% lower for the week.
Industrials squeezed out a 0.3% gain thanks to a rally in shares of United Parcel Service (UPS). The logistics company saw its profit and revenue increase above Wall Street's expectations and ended the week with a 14% increase in its share price.
The financial sector was underpinned by solid gains in Willis Towers Watson (WLTW) and Discover Financial Services (DFS), both of which beat expectations for the first quarter. The sector closed the week with a solid 2.3% gain.
In economic data, dwindling inventory coupled with diminished affordability (the Case Shiller HPI posted its biggest gain in more than seven years) was reflected in housing market data. Pending home sales increased by just 1.9% in March, well below expectations for a gain of 4.4%.
The preliminary glimpse of the first quarter showed that the economy grew at an annualized rate of 6.4%, well above the 4.3% pace in the fourth quarter, but shy of Wall Street expectations.
Growth should continue to accelerate, evidenced by the stimulus-fueled 21% gain in personal income which was accompanied by a 4.2% increase in March personal spending. Additionally, consumer confidence shot higher, bolstered by massive government stimulus and low interest rates.
The Conference Board's consumer confidence index and sentiment index measured by the University of Michigan both reached their highest levels in a year.
Next week's earnings calendar includes Avis (CAR), Mosaic (MOS), CVS (CVS) DuPont (DD), Pfizer (PFE), Sysco (SYY), Under Armour (UAA), Hyatt (H), Lyft (LYFT), Prudential (PRU), T-Mobile (TMUS), Carnival (CCL), General Motors (GM), Hilton (HLT), PayPal (PYPL), Uber (UBER), Kellogg (K), Norwegian Cruise Lines (NCLH), ViacomCBS (VIAC), American International (AIG), Expedia (EXPE), Peloton (PTON), Shake Shack (SHAK), and Square (SQ).
The economic calendar includes manufacturing and services sector data from US purchasing managers, factory orders, durable goods orders, non-farm productivity and unit labor costs, culminating Friday with the pivotal labor market report for May. Early estimates are for a 970,000 increase in non-farm payrolls for April, pushing the jobless rate down to 5.7% in April.
All eyes turn to the US jobs report due Friday, which will probably point to an acceleration in the labor market recovery. Elsewhere, UK local elections are being held on Thursday; while the earnings season continues, with Pfizer and GM due to report their quarterly results. Worldwide PMI surveys will be in the spotlight, as well as monetary policy action by central banks in the UK, Australia, Thailand, Norway, Brazil, Malaysia and Turkey. Other releases include trade figures for the US and Canada, key factory data for the US, Brazil, France and Germany, and GDP updates for Hong Kong and Indonesia.
European markets closed mostly lower on Friday, with the benchmark DAX closing around the 15,150 level to end the week on a sour note, as investors reacted negatively to a report on the block’s first-quarter economic activity. The eurozone entered a double-dip recession in the first quarter of 2021, with Germany, Italy and Spain falling back into contraction territory. France, however, recorded a small expansion, supported by robust growth in construction and a rebound in household spending. On the corporate front, investors welcomed better-than-expected quarterly earnings reports from BNP Paribas, Barclays, Banco Sabadell, Re and AstraZeneca. Turning to the big picture, the DAX recorded its third straight month of gains as investors continued buying on expectations of a vaccine and stimulus-driven economic recovery.
The FTSE 100 ended virtually higher at 6,970 points on Friday, with AstraZeneca and Smurfit Kappa reporting stronger-than-expected quarterly results, while British American Tobacco and Imperial Brands gained after their peer Match reported an upbeat quarterly profit. On the economic data front, mortgage lender Nationwide noted that UK house prices jumped by 2.1% in April, the biggest monthly increase since 2004, following the extension of the stamp duty holiday. Investors also digested Europe's mixed GDP numbers, rising government bond yields and soft Chinese factory activity data. Elsewhere, US President Biden's new spending plan and the dovish stance by the Fed continued to support risk-appetite along with US GDP and jobless claims data released yesterday. The index ended April almost 4% higher, recording its third consecutive month of gains.
The CAC 40 closed 33 points or 0.5% lower at a one-week low of 6,269 on Friday, reversing from over 20-year highs in the prior session and in line with its European peers, as economic data confirmed the Eurozone entered in a double-dip recession after Q1 output fell 0.6% over the previous quarter, in contrast to he 6.4% growth in the US. However, the French economy managed to outpace expectations with a 0.4% expansion, helped by Macron’s decision to hold off a national lockdown. On the earnings front, BNP Paribas shed 0.8% as its performance in bond brokerage activities offset better-than-expected Q1 earnings, which rose 11% to €1.8 billion on lower costs of risk and investment activities. On the other hand, aero engine and equipment maker Safran jumped 3% after reaffirming its 2021 objectives, despite a 38% plunge in Q1 revenues to €3.3 billion due to the pandemic. Finally, the key French stock index ended the month 3.4% higher but retreated 0.3% on a weekly basis.
The Shanghai Composite Index lost 23 points or 0.7% to 3,452 in early trade on Friday, closing little changed on-month as risk sentiment was dampened after the country’s factory activity growth slowed in April, while worries over policy tightening and Sino-US tensions persisted. US President Joe Biden took aim at China in his first speech to Congress earlier this week, pledging to maintain a strong military presence in the Indo-Pacific and promising to boost technological development and trade. Locally, the official NBS Manufacturing PMI for China fell to 51.1 in April, below consensus of 51.7, as supply bottlenecks and rising costs weighed on production and overseas demand lost momentum. Meanwhile, service activity also grew softer, rising for the 14th month. In Hong Kong, the Hang Seng Index fell 522.62 points or 1.78% to 28780.64 after Chinese financial watchdogs summoned 13 internet platforms engaged in finance business to order them to strengthen compliance with regulations.
The Nikkei 225 lost 241.34 points or 0.83% to 28812.63 on Friday, closing 2.21% lower for the month as investors proved cautious amid a fresh surge of novel coronavirus infection rates. The nationwide tally of new infections climbed to 5,918 Thursday, the highest daily level since January 28. The resurgence comes less than 3 months before the opening of the Tokyo Olympics. Among stocks, Sony Group lost 7.71% after reporting expectation of declining profits as stay-at-home demand wanes. Murata Manufacturing Co also fell 3.55% after the electronic parts maker’s forecasts also fell short of analysts’ expectations. In local data, the unemployment rate unexpectedly fell to 2.6% in March, the lowest since April 2020. The au Jibun Bank Japan Manufacturing PMI rose to 53.6 in April, the 3rd straight month of growth and the strongest since April 2018. Finally, industrial production unexpectedly rose by 2.2% on-month in March, easily beating market estimates of a 2% fall.
The BSE SENSEX shed 350 points or 0.7% to 48,414 in early trade on Friday after four straight sessions of gains. Risk appetite was dragged down by reports that India logged a record daily rise in COVID-19 cases of 386,452 on Friday, while deaths jumped by 3,498 over the last 24 hours. Traders shrugged off upbeat US data where the economy grew sharply in Q1, while the number of people seeking unemployment last week reached its lowest point since the pandemic began. Meantime, concerns over higher US inflation lingered, with Fed Chair Powell saying on Wednesday that supply bottlenecks in the US will cause temporary price increases. Market participants now focus on earnings reports of Reliance Industries. For the week, the index is set to post its strongest week since early February. HDFC Bank and Housing Development Finance Corp sank 3.3% and 2.5%, each.
Canada’s main stock index fell for the second session in a row on Friday, with the benchmark S&P/TSX Composite finishing below the 19,200 level dragged by a massive selloff in the technology and materials sectors. On the data front, preliminary results showed the Canadian economy grew by 0.9% in March from a month earlier, boosted by manufacturing, retail trade and finance. Eldorado Gold Corp and Real Matters Inc were among the biggest laggards on the TSX, down 8.3% and 5.6%, respectively. Still, the index ended the week on a high note, and, looking for how it performed in April, TSX recorded its third straight month of gains as investors continued buying on expectations of a vaccine and stimulus-driven economic recovery.
Brazil's Ibovespa fell for a second straight session on Friday, with the benchmark index ending below the 120,000 level as concerns over the domestic recovery increased after bleak unemployment data. The unemployment rate in Brazil increased to 14.4 percent in the three months to February of 2021, the highest since the three months to September of 2020, as the number of unemployed persons soared to a record 14.4 million. Meanwhile, Brazil's nominal budget deficit narrowed to BRL 44.5 billion in March of 2021 from BRL 79.7 billion in the same month of the previous year. Investors also digested mixed global economic data and continued to follow coronavirus developments. Still, the index ended April almost 2% higher.
The yield on the benchmark 10-year Treasury note stood at 1.64% on Friday, not far from an over two-week high of 1.69% hit on Thursday. Investors welcomed US President Biden's $1.8 trillion stimulus package proposal, which would raise spending on education and childcare and would be financed by increasing the top marginal tax rate for the wealthiest Americans. At the same time, upbeat economic data showed the US GDP increased at a 6.4% annualized rate last quarter and weekly jobless claims dropped to an over year low. Elsewhere, Federal Reserve Chairman Jerome Powell said on Wednesday it was too soon to talk about tapering bond purchases, despite the improving outlook. Auctions held in recent weeks were met with sufficient demand, easing fears that investors would struggle to soak up the flood of supply hitting the market.
The Fed left the target range for its federal funds rate unchanged at 0-0.25% and said it will continue to purchase bonds at a rate of $120 billion a month despite acknowledging a rise in inflation and the improvement in the economy. Policymakers noted that indicators of economic activity and employment have strengthened amid progress on vaccinations and strong policy support but stressed the pandemic continues to weigh on the economy, and risks to the outlook remain.
Major sovereign bonds plunged on Thursday on signs that the global economy is poised to experience some of its strongest growth in decades, with better-than-expected weekly jobless claims numbers and upbeat US GDP figures reinforcing such view. Fed officials left rates and asset purchases unchanged but acknowledged this improving economic outlook and a rise in inflation. The US yield on the 10-year note, which sets the tone for corporate and household borrowing costs worldwide, jumped to a two-week high of 1.67%. The German 10 Year Government Bond Yield increased to a 2-month high of -0.23%. France 10 Year Government Bond Yield jumped to a 12-month high of 0.158%.
The US economy grew by an annualized 6.4 percent in the first quarter, following a 4.3 percent expansion in the previous three-month period and slightly beating market expectations of 6.1 percent, the advance estimate showed. Activity and demand consolidated their recovery from last year's steep contraction, helped by reopening efforts amid an acceleration in the pace of COVID-19 vaccinations and continued government response related to the pandemic. Increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending were partly offset by decreases in private inventory investment and exports.
The greenback has managed to bounce off its two-month lows on Friday, consolidating around the 91.20 level, as a shift in risk appetite favored safe-haven flows while the overall outperformance of the US economy relative to the rest of the world exacerbated this buying spree. The US economy advanced at an annual rate of 6.4% in the first quarter of 2021, reflecting the continued economic recovery, with recent data, including upbeat personal income and spending figures, pointing that way. It marks a sharp contrast with the eurozone, where renewed lockdown measures to stop the pandemic’s spread pushed the block into a double-dip recession. The Federal reserve also painted a rosier picture of the economy but noted it was too early to consider rolling back its emergency support. Turning to the big picture, the USD ended April more than 2% down, which marks the first monthly decline in 2021.
Oil prices fell more than 2% on Friday, with WTI crude settling around $63.50 a barrel on concerns that a deepening coronavirus crisis in India may dent oil demand. On the supply side, the OPEC+ stuck to their plans for a gradual easing of oil production curbs from May to July, after the group raised its demand growth for 2021 to 6 million bpd. Also, the EIA Petroleum Status Report showed the US crude stocks rose less than expected last week. Still, WTI ended the week on a high note, and, looking for how it performed in April, the US benchmark rose more than 7% as optimism about robust demand recovery in the second half of the year outweighed concerns about the impact of soaring COVID-19 cases in India, Japan and Brazil.
Gold extended losses to below $1,770 an ounce on Friday, close to levels not seen in two weeks and recording its worst week in more than a month as prospects of a robust economic recovery pushed Treasury yields higher, denting bullion's appeal. The US economy advanced at an annual rate of 6.4% in the first quarter of 2021, while a slew of economic data, including upbeat personal income and spending figures and a better-than-expected jobless claims report, reinforced the view of a strong US economic bounce. Meantime, the US Federal Reserve reiterated its ultra-accommodative monetary policy while also acknowledging an improving economic outlook and a rise in inflation. Still, safe-haven demand stemming from rising coronavirus infections in countries from India to Japan and a softer dollar capped bullion's losses. As a result, the precious metal booked its first monthly gain in four.
Silver futures were trading around $26 an ounce on Friday, spurred on by some safe-haven bids stemming from rising coronavirus infections in countries from India to Japan. On top of that, expectations of increased industrial demand as the economic recovery gather pace and a weaker dollar offered lasting support.
The Baltic Dry Index rose 1.5% to a near 11-year peak of 3,053 on Friday, extending its winning streak to 13 sessions, mainly supported by rising iron ore demand from China. The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, advanced 2.6% to 4,896, its highest level since September of 2019; and the panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and iron ore, gained 1.1% to 2,672. Among smaller vessels, the supramax index shed 7 points to 2,144. The Baltic Dry Index rose 49% in April, the fifth straight month of gains and the most since June 2020.
The number of Americans filing new claims for unemployment benefits decreased further to 553 thousand in the week ended April 24th from an upwardly revised 566 thousand in the previous week and slightly above market expectations of 549 thousand. It is a third consecutive week with claims below 600 thousand and a fresh low since the pandemic struck helped by improvement in the economy due to the accelerating pace of COVID-19 vaccinations. Still, the claims are far above the roughly 230 thousand level that prevailed before the viral outbreak ripped through the economy in March of last year.
The University of Michigan's consumer sentiment for the US was revised higher to 88.3 in April of 2021 from a preliminary of 86.5 and above market expectations of 87.4. It was the highest reading since March 2020 due to a growing sense that the upward momentum in jobs and incomes will persist propelled by record federal stimulus spending and a growing share of the population who are vaccinated. There was an improvement in the expectations component (82.7 vs 79.7 in the preliminary release) while the assessment of current economic conditions remained unchanged at 97.2. On the price front, inflation expectations for the year ahead were revised lower to 3.4 percent from 3.7 percent and those for the next 5 years were unchanged at 2.7 percent. Overall, the data indicate an exceptional outlook for consumer spending through mid-2022.
The MNI Chicago Business Barometer in the US increased by 5.8 points to 72.1 in April 2021, the highest level since December 1983 and above market expectations of 65.3. Among the main five indicators, the gauge for new orders rose 9.9 points to a near 7-year high, while the production index ticked up 0.9 points to the highest level since January 2018. In addition, employment edged higher by 1.7 points, marking the highest level since August 2018 and the second successive reading in expansion territory. The order backlog index jumped 16.2 points to the highest level since December 1973, while inventories and supplier deliveries declined.
The personal consumption expenditure price index in the United States rose 0.5 percent month-over-month in March of 2021, accelerating from a 0.2 percent increase in February. Excluding food and energy, PCE prices edged up 0.4 percent, following a 0.1 percent gain. Year-on-year, the PCE price index advanced 2.3 percent, the most since 2018; and the core index increased 1.8 percent.
Personal income in the US jumped 21.1 percent month-over-month in March of 2021, rebounding from a revised 7 percent drop in February and above market expectations of a 20.3 percent gain. It is the biggest rise on record reflecting an increase in government social benefits as most of the Americans received stimulus checks under The American Rescue Plan Act.
Personal spending in the United States jumped 4.2 percent from a month earlier in March 2021, following a 1.0 percent fall in February and slightly beating market consensus of a 4.1 percent growth. It was the largest increase in consumption since June 2020, as households received an additional round of direct economic impact payments from the government. Spending on goods was supported by both nondurable, led by “other” nondurable goods, which includes recreational items like games, toys, and hobbies, and durable goods, in particular motor vehicles and parts. In addition, the largest contributor to the increase in spending on services was spending for food services and accommodations.
The euro traded at the $1.21 on Friday, little-changed from the previous session's two-month high and heading for an over 3% monthly gain against the greenback supported by optimism about a strong economic recovery and signs of an acceleration in the vaccination pace in Europe. Still, data showed the Eurozone entered a double-dip recession in the first quarter, with Germany, Italy and Spain falling back into contraction territory and France returning to growth. At the same time, the bloc's consumer prices rose 1.6% in April, the most for two years, while the unemployment rate fell to 8.1% in March, below market expectations. Last week, the ECB left monetary policy unchanged and maintained its pledge to increase support if needed.
The Chinese Yuan lost 0.00646 points or 0.1% to 6.46913 against the US Dollar on Friday, holding near 2-month highs after the onshore rate was set at 6.4672. Sentiment for the Yuan remained robust after the Caixin China General Manufacturing PMI rose to a 4-month high in April, while the official NBS Manufacturing PMI fell to 51.1, as supply bottlenecks and rising costs weighed on production and overseas demand lost momentum. Meanwhile, service activity grew softer, rising for the 14th month. In the US, 10-year bond yields also ticked higher to 1.638% as data showed that GDP grew 6.4% on-year in Q1 of 2021, while jobless claims fell to a fresh pandemic-era low but were higher than expected. US President Joe Biden also took aim at China in his first speech to Congress earlier this week, pledging to maintain a strong military presence in the Indo-Pacific and promising to boost technological development and trade.
The Japanese Yen added 0.15 points or 0.14% to 108.78 on Friday, holding near 2-week lows as better-than-expected weekly US jobless claims numbers and upbeat GDP figures reinforced prospects of an accelerating economic recovery and pushed long term bond yields higher. Local 10-year bond yields were at 0.096%, while US 10-year rates ticked higher to 1.649%. Meantime, traders remain wary of rising novel coronavirus infection rates as Japan’s nationwide tally of new infections climbed to 5,918 Thursday, the highest since the second state of emergency was completely lifted in late March. In local data, the unemployment rate fell to 2.6% in March, the lowest since April 2020. The au Jibun Bank Japan Manufacturing PMI rose to 53.6 in April 2021, the 3rd straight month of growth and the strongest pace since April 2018. Finally, industrial production unexpectedly rose by 2.2% on-month in March, easily beating market estimates of a 2% fall.
The Eurozone consumer price inflation is expected to accelerate to 1.6 percent year-on-year in April of 2021, the highest level since April of 2019 and in line with market expectations, a preliminary estimate showed. Energy prices are set to rise by 10.3 percent (4.3 percent in March) while non-energy industrial goods cost is seen up 0.5 percent (0.3 percent in March). Meantime, slower increases are expected for services (0.9 percent vs 1.3 percent) and food, alcohol & tobacco (0.7 percent vs 1.1 percent). The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, is expected to slow to 0.8 percent in April from 0.9 percent.
The Euro Area economy shrank 0.6 percent on quarter in January-March 2021, slightly less than forecasts of a 0.7 percent contraction, a preliminary estimate showed. The bloc entered a double-dip recession in the first quarter, as COVID-19 lockdowns continued to hammer the services industry. Among the bloc's biggest economies, Germany, Italy and Spain fell back into contraction territory, while France's economy returned to growth as the government delayed the imposition of lockdown measures. Year-on-year, the GDP dropped 1.8 percent in the first quarter, easing from a 4.9 percent slump in the previous three-month period.
Coal futures were trading around the $90 per tonne level, close to levels not seen since March 2019, amid tightening supplies and higher restocking demand. Top consumer China has been facing some supply shortages amid coal mine inspections and falling imports, while some production suspension in Inner Mongolia to curb emissions tightened supplies further. Coal prices are up almost 80% from a nearly 4-year low of $51/tonne hit in August, supported by government policies, particularly China’s ban on Australian coal imports and supply issues after producers cut on output as prices weakened during the height of the lockdowns across Asia.
NYMEX natural gas futures were trading around the $2.90/MMBtu level in the last week of April, moving away from the $3.00/MMBtu region after a government report showed that US stockpiles increased more than expected last week. Still, the commodity has rallied more than 10% so far in April, heading for its best month since October last year, on the back of higher heating demand, record exports and a recent decline in production.
The S&P CoreLogic Case-Shiller 20-city home price index in the US jumped 11.9% yoy in February of 2021, following 11.1% growth in January and slightly above expectations of 11.7%. It is the biggest increase since March of 2014, with Phoenix (17.4%), San Diego (17%), and Seattle (15.4%) continuing to report the highest gains. Considering the whole 9 US census divisions, house prices increased 12%, a fresh high since February of 2006. "These data remain consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes. This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing", says Craig Lazzara, Managing Director and at S&P DJI.
The average prices of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac in the United States went up 0.9 percent from a month earlier in February of 2021, following a 1 percent rise in January. For the nine census divisions, seasonally adjusted monthly house price changes ranged from +0.3 percent in the Middle Atlantic division to +1.6 percent in the Mountain division. Year-on-year, house prices climbed 12.2 percent in February, with the changes ranging from +10.5 percent in the West North Central division to +15.4 percent in the Mountain division.
Contracts to buy previously owned homes in the US rose 23.3 percent from a year earlier in March 2021, following a 0.5 percent decline in February, as interest rates remained at low levels and supply was near all-time lows. Contract signings were up double-digits in all four regions: the Northeast (16.7 percent); Midwest (14.1 percent); South (27.9 percent); and West (29.8 percent). On a monthly basis, pending home sales rose 1.9 percent in March, partially recovering from a revised 11.5 percent slump in February.
Mortgage applications in the US fell 2.5 percent in the week ended April 23rd, 2021, following an 8.6 percent increase in the previous week which was the strongest gain since early January. Home refinancing fell 1.1 percent and applications to purchase a home went down 4.8 percent. The decline came even though the average interest rate for 30-year fixed-rate mortgages fell by 3bps to 3.17%, the lowest since mid-February. “Even with a few weeks of lower rates, most borrowers have likely already refinanced, which is why activity has decreased in seven of the last eight weeks,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
Palladium increased to an all-time high of 2964 USD/t.oz
Heating oil extended gains toward its highest level since January last year, trading above $1.95 per gallon and moving in tandem with oil and gasoline prices on prospects that demand will rebound further in the second half of the year as vaccination rollout gathers pace. Also, the EIA Petroleum Status Report showed US heating oil inventories fell by 0.175 million barrels in the April 23rd week, following a 0.563 million increase in the previous period.
Chicago lumber futures were trading above the $1,400 per thousand board for the first time on record as sawmills strive to keep pace with demand ahead of the peak spring construction season. The stay-at-home lifestyle has encouraged homeowners to expand or remodel their existing dwellings, while record-low mortgage rates exacerbated this home-building spree. On top of that, supply remains quite scarce, with purchasers struggling to fulfil existing and new buying requirements in the aftermath of coronavirus-driven production curbs.
The copper market extended its upward momentum into April, with front-month futures climbing to a 10-year high above $4.5 per pound, as speedy vaccination rollouts and trillions in dollars of economic stimulus lifted hopes of a robust global economic recovery and higher demand for metals. Recent economic readings from the United States and China reinforced this view, while President Biden’s multitrillion-dollar infrastructure plan lent further optimism to the copper bulls. Adding to the chipper mood, banks like Goldman Sachs and Citi lifted their bets on copper consumption this year, focusing on its longer-term role in a carbon-free world.
The goods deficit in the US widened to a fresh record high of $90.59 billion in March of 2021 from $87.1 billion in February. Exports rose 8.7 percent to $130.7 billion, led by double-digit gains in sales of industrial supplies (10.1 percent) and consumer goods (15.3 percent) and strong shipments of capital goods (7.3 percent) and autos (7.2 percent). Imports were up 6.8 percent to $232.6 billion , led by capital goods (5.7 percent), consumer goods (7 percent) and industrial supplies (7.6 percent).
Wholesale inventories in the US increased 1.4 percent from the previous month in March 2021, following an upwardly revised 0.9 percent growth in February, a preliminary estimate showed. Nondurable goods stocks rose 1.6 percent (vs 1.2 percent in February) and durable goods inventories were up 1.2 percent (vs 0.6 percent in February). On a yearly basis, wholesale inventories advanced 4.5 percent in March.
Nickel futures rose to a 2-month high above the $17,000 per tonne level, as prospects for rebounding growth as the global vaccine rollout gathers pace underpinned a rally in the metals market. Meantime, the commodity growing usage in lithium-ion batteries and the accelerated roll-out of electric vehicles remains a positive backdrop for markets. In early March, nickel prices slumped to a 3-month low and stuck in a tight range until the end of April, after concerns about supply shortages eased following China’s Tsingshan announcement to produce a large amount of nickel matte in Indonesia.
Chicago soybean futures traded above $15 per bushel for the first time since July 2013, tracking gains in corn and wheat amid strong demand and concerns over global supplies. Chinese soybean imports hit 7.77 million tonnes in March, an annual increase of 82%, boosted by strong demand from the livestock sector. Meanwhile, the imports from Brazil, the world's top exporter, dropped to the lowest since January 2017 as rain delayed some shipments. Also, the cool and dry weather in Midwest can impact the crops in spite of US farmers planning to sow 87.600 million acres with soybeans this year, the most since 2018.
Chicago corn futures traded around $7 per bushel for the first time since July 2013 amid concerns over tightening global supplies and robust demand from China. The world’s two biggest corn exporters have been hit by unfavorable weather with dryness in Brazil and a cold period in the US raising supply worries. Meantime, stocks from the 2020 harvest have been diminishing and demand from China has been growing. At the same time, the world’s No. 3 corn supplier and top exporter of soymeal livestock feed Argentina is considering an increase in grains export taxes.
Prices for iron ore cargoes with a 63.5% iron content for delivery into Tianjin rose to above $190 per tonne, its highest level since March 2008 on robust demand for the steel-making ingredient and lower supply. China’s crude steel production climbed 19% last month to a near record high and mills keep increase output on high-profit margins despite the government’s environmental rules. Meantime, top iron ore producers Rio Tinto, BHP and Vale struggled to keep up with strong Chinese demand in the first quarter hit by operational challenges and weather disruptions.
Aluminum futures extended gains to trade around $2,400 per tonne for the first time since April 2018 on strong demand and growing expectations that China’s supply will be limited due to carbon emission targets. The Chinese city of Baotou in Inner Mongolia shut down 34 ferroalloy companies and some captive power plants as part of a series of measures to meet its energy consumption targets for the first quarter, which could curb aluminum production by around 100,000 tonnes on an annual basis. Aluminum prices are more than 60% higher than a 4-year low of $1,462 hit last May driven by a recovery in demand particularly in the automotive, packaging and construction sectors from the Covid-19 hit.
Rhodium prices traded around $28,800 an ounce, not far from a record high of $29,800 hit last month, amid increasing demand from the auto industry as it is used for catalytic converters, which help cut down on nitrogen emissions. In March, car sales in China rose to 1,874,000 from 1,156,000 in February and new car registrations in the EU surged to 1,062,446 from 771,486. The coronavirus pandemic continues to pose risks of supply shortfalls in the top producer South Africa while downward price pressure may arise from the increasing probability of the rhodium-palladium substitution.
ICE arabica-coffee futures regained ground in April, breaking above the $1.4 per pound, a level not seen in more than three years, as supply concerns outweighed expectations of lower demand. A massive drop in output after a drought in top producer Brazil and recent cargo-market disruptions following the Suez blockage are likely to push the coffee market into a deficit this year. Meanwhile, new fresh lockdowns and other restrictive measures to fight coronavirus in Europe and Japan have hit consumption.
Rice futures bounced back above $13 per hundredweight, hovering around their highest level since mid-July, as India's agricultural sector is expected to remain under pressure due to fresh COVID-19-led lockdowns that have stagnated market demand. The world's top exporter of rice has been reporting record daily increases of COVID-19 infections, leading many states to impose restrictive measures and the Indian government to extend the free food-grains assistance to 80 million vulnerable people for May and June. Elsewhere, Egypt, which was once a rice exporter, announced it has allocated 1.074 million feddans of land for rice cultivation in the 2021 season.
Cotton futures traded around 89 cents a bushel for the first time since early March, supported by dry weather conditions in key growing regions and hopes for robust demand as economies reopen. The USDA expects world cotton production to rise nearly 5% from the year before in 2021/22, to 119.5 million bales. At the same time, world cotton consumption is expected to continue rebounding in 2021/22, rising 4.1% from a year earlier to 122 million bales, pushing world stocks down by 3.2 million bales.
Shanghai steel futures surged past another milestone to trade above 5,300 yuan a ton as attempts from steel mills to produce more have been limited due to environmental restrictions imposed in China’s steel capital Tangshan while demand keeps growing. China’s crude steel output increased 19% from a year earlier to a near-record on high-profit margins and exports in March jumped to a 4-year high, signaling robust global demand. The construction frenzy that has been boosting demand for the metal is likely to be spur by strong construction and manufacturing activities over the coming peak season.
The rubber market gained some upside momentum, with futures on the Tokyo Commodity Exchange climbing to over 240 yen per Kg for the first time since end-March on concerns that a worsening coronavirus situation domestically and in other Asian countries could result in rubber shortage. The central government approved a third Covid-19 state of emergency for Tokyo, Osaka, Kyoto and Hyogo from April 25th to May 11th to curb a renewed surge in infections. In the broader scenario, rubber futures also benefited from higher oil prices and strength in other commodities.
Thank you and please stay tuned for more upcoming reports.
Len Martinez PhD CPA is President of Bull Valley Advisors. Len publishes the "Bull Valley Advisor", a Stock Market newsletter for Institutional Investors, featuring his BVA Value Momentum Portfolio Strategy.
Information in this report and the "Bull Valley Advisor” newsletter should not be considered as investment advice or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, StockCharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics, IBD and S2O. Results are not guaranteed. Len Martinez is not an RIA. The data is shown for informational purposes and should not be considered investment advice or an offer to buy or sell securities.
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