1H May Global Market Recap
1st May 2021 – 15th May 2021
Global cases have reached 162 million on 15th May, according to data from Johns Hopkins University. The worldwide death toll has hit 3.44 million, and U.S. is leading all countries with a death toll of 602k, followed by Brazil(444k) and India(291k).
The U.S. non-farm payrolls added 266k in April, sharply below the medium estimates of 1 million and 770k last month. The U.S. economy was still 8.2 million payrolls less than pre-pandemic levels from February 2020. Across sectors, temporary help services jobs fell by more than 111k in April, transportation and warehousing sectors lost over 74k jobs, and jobs in retail trade dropped by 15,300. The U.S. Inflation rate accelerated at the fastest pace in over 12 years in April, far exceeding consensus estimation, raising concerns that the country is overheating. The CPI Index rose 4.2% from a year ago, a significant surge compared with 2.6% reading in March. Meanwhile, the 5-year and 10-year breakeven rates have risen sharply to their highest levels since 2013. China’s producer price index rose at the fastest rate in three and half years in April, but CPI growth was still modest. The PPI rose 6.8% from a year ago, largely due to higher raw material prices. China’s CPI remains steady in April, rising 0.9% from a year earlier.
Accelerating inflation fears and concerns over tightening monetary policies by central banks continue to shape market moves. The disappointing April job market report and unexpected inflation rise contributed to the underperformance of U.S stocks. The S&P 500 fell 0.2%, the blue-chip Dow gained 1.5% while the technology-heavy Nasdaq, whose companies are particularly sensitive to higher inflation and interest rates dipped 3.8%. China stocks ended mixed in the first half of May. The blue-chip CSI 300 index dipped 0.3%, while the Shanghai Composite Index rose 1.3%. Both Shenzhen Component Index and ChiNext Index registered losses, dropping 1.6% and 1.9% respectively. CSI 300 Index is still down 1.9% year to date.
The 10-year U.S. treasury yield rose marginally in the first half of the month, increasing by 0.25bps, after surging by 82.7bps in the first quarter. The U.S. treasury did not increase its recent quarterly bond sale, suggesting that financings needs have peaked. Since COVID-19 hit, the U.S. government has issued more than US$4 trillion worth of debts. The USD three-month Libor rate hit a record new low of 0.154% on 12th May, since its inception in 1986. The huge liquidity injection into the financial system since COVID-19 happened has decrease demand for commercial paper and the drawdown of the treasury’s cash pile have facilitated the decline in the LIBOR rate.
Overall, the credit market remains relatively stable and market sentiments remains positive as vaccination across countries continues. US companies have been taking advantage of cheap borrowing even though they do not need it as the low cost of borrowing proves too tempting to resist. Amazon made its biggest bond sale ever at US$18.5 billion earlier in the month, just behind Verizon Communication’s US$25 billion offering in March. 366 Chinese corporate bonds were downgraded in the first four months of 2021 compared with the 109 in the same period a year ago after a series of defaults by state-owned companies. In November 2020, China is vice-premier Lie He warned that Beijing would have zero tolerance for corporate wrongdoing.
The dollar index continues to fall in May after three months of continuous rise since the start of the year. The dollar index traded at February’s levels as the Federal Reserve mentioned to keep the interest rates at ultra-low levels despite the economy’s growth. 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. China’s foreign exchange reserves, which is the world’s largest, increased in April from a month earlier as the US dollar weakened.
Brent and WTI crude oil prices rose in May by 2.2% and 2.8% respectively as the market is optimistic in renewed demand after more U.S. states eased lockdown and the European Union sought to attract travelers. The CoreCommodity CRB Index hit a 5 year high with the index reaching levels back in mid-2015. Meanwhile, Bitcoin price has taken a breather, dropping by 13.4%. Prices hit a three-month low as Tesla boss Elon Musk hinted that they may have already sold some of its bitcoin holdings.