1H April Global Market Recap
1st April 2021 – 15th April 2021
Global cases have reached 137 million on 15th April, according to data from Johns Hopkins University. The worldwide death toll has hit 3 million, and U.S. is leading all countries with death toll exceeding half a million. On 14th April, India has overtaken Brazil as home to the second-most cases in the world.
U.S. President Joe Biden presented his $2.25 trillion infrastructure plan in a White House speech on 7 April, which outlined an 8-year program that includes $620 billion for transportation infrastructure and $650 billion for initiatives such as cleaner water and high-speed broadband and would raise corporate tax rate to 28% to fund it. The US economy added 916,000 new jobs in March, signaling that the job market recovery is accelerating. Unemployment rate was reported at 6% in March, 0.2% lower than that of February. The labor market report showed that hiring increase across industries, led by 280k increase in leisure and hospitality sector. The U.S. headline CPI index increase 0.6% in March from February and 2.6% from a year earlier, which is the highest since August 2018 and well above the 1.7% registered last month. Gasoline prices surged 9.1% in March and accounted for over half of the gains in the CPI index. The big surge from CPI on a YoY basis was due to lower level used for comparison and is expected to decrease from May. Core CPI, which excludes volatile food and energy costs, rose by 0.3% monthly and 1.6% year over year.
In China, both manufacturing and non-manufacturing PMIs show a strong recovery of the economy.
The official manufacturing PMI index rose to 51.9 in March from 50.6 in February as new export orders rebounded with factories shutting down during the Chinese New Year holidays. Non-manufacturing PMI surged to 56.3 from 51.4 last month. This increase reflects a big jump in services related to construction work, which is a hopeful sign that implementation of infrastructure investment announced in the Two Sessions has begun.
U.S. stocks hit new record on 14th April with Nasdaq 6% higher and S&P 500 index up 5% in the first half of April. The U.S. equity volatility benchmark fell to its lowest in over a year on 15th April. The Cobe Volatility Index futures and ETF signals suggest some traders are increasingly concerned that volatility may soon return amid worries about stretched valuations and signs of froth in risk assets. Chinese shares have reversed course since February, when it became increasingly clear that policymakers were shifting their priority to taming asset bubbles and reducing financial leverage. The CSI 300 Index fell 2% month to date, bringing its year-to-date loss to 5% and down around 15% from the peak in February. Concerns about inflation and tighter monetary conditions means appetite for Chinese shares will likely remain subdued.
The 10-year U.S. treasury yield fell in the first half of April, decreasing by 16.45bps, after surging by 82.7bps in the first quarter. The fall in yields reflects renewed demand for government debt after sustained selling in the first quarter, due to worries with rising inflations. Major countries’ 10-year government bond yields showed mix performances. The yield curve steepened for tenors longer than 2 years in the past three months while tenors shorter than 2 years drop in the past three months.
Overall, the credit market remains relatively stable and market sentiments remains positive as vaccination across countries continues. Across the board, most major CDS and OAS indices have recovered back to pre-COVID levels as the global economy continues to recover from the pandemic. On 1st April, Huarong Asset Management did not release its financials on time, citing delay due to the possibility of a significant restructuring. Huarong’s USD bonds fell overnight and were priced like China’s junk related real estate developers as investors fear of a default. Its 4.5% perpetual dollar bond fell to its lowest at 47cents on the dollar. The selloff spread to other Chinese high yield dollar notes as well. Credit Suisse’s Archegos Capital Management blowup costs the bank US$4.7bn and its 5yr CDS spreads spike back in March. However, its CDS spreads have tightened since as the bank is on course for its strongest underlying quarter for the decade aside from the saga.
The dollar index fell in April after three months of continuous rise since the start of the year. The dollar index traded near a six-week low, hurt by a dip in US Treasury yields as some investors sought the safety of holding government debt. Most other major international currencies appreciated against the dollar as well. The Chinese Yuan’s appreciation against the dollar has begun to taper since the start of the year after a strong rally from June to December 2020.
Brent and WTI crude oil prices rose in April by 5.4% and 7.3% respectively as demand outlook improves and the dollar weakens. The International Energy Agency (IEA) and OPEC made upward revisions to their global oil demand growth forecasts for 2021. Brent and WTI crude oil prices have been recovering since the drop back in March 2020 as global economic recovery continues. Major commodities rose as well as the dollar weakens. Meanwhile, Bitcoin price hits an all-time high on 15th April at US$63,410 and rose 7.5% in the month as more and more institutions begin to adopt it, with many seeing it as an inflation hedge.