Highlight of the Day
2021 began with investors expecting regional stocks to continue leading the global equity rebound as vaccine rollouts gather pace, that narrative now seems to be in short supply owing to a selloff in Chinese shares and concerns over dollar strength
Concerns over China market and stronger U.S. dollar have hit sentiments
The MSCI Asia Pacific Index is up just 3.3% year-to-date, compared with a gain of almost 10% each for equity benchmarks in the U.S. and Europe
The recent jump in real U.S. Treasury yields has put a squeeze on risk assets and prompted money managers to rethink geographic and cyclical exposure in their portfolios. Higher yields are also raising the odds of a stronger dollar, a traditional negative for emerging Asia investors
On a regional basis, the 2021 returns from Chinese equities have weighted heavily on the wider index. China’s CSI 300 Index is down more than 13% from a 13-year high reached in February amid concerns over valuations and potential liquidity tightening in the nation
Also hurting Asia’s prospects is a resurgence in virus cases and vaccine shortages in in Japan, India, Thailand and the Philippines
“Much of the growth recovery in Asia has been priced in,” said Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management. It downgraded emerging Asia to neutral from overweight “driven mostly by a less bullish view on Chinese equities.”
“We remain overweight on Asian equities, attracted by an expected 30% EPS growth in 2021, reasonable valuation, Chinese economic strength, and more focus on ESG considerations,” said Sean Taylor, chief investment officer APAC at DWS Group.
Market Highlights at 07:45 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading lower -0.55%, and the MSCI Emerging Market index is down -0.45%
• Trends on SGX Nifty look poised for a gap-down opening for Nifty 50 in India. The Nifty futures are trading 166 points or -1.11% lower at 14,704 on the Singaporean Exchange at 07:45 a.m. I.S.T.
• U.S. equity futures dropped in early morning trade after S&P 500 closed at record high on Friday; alongside a mostly negative start in Asia-Pacific benchmarks gauges in early Monday trade with shares fluctuating in South Korea, and falling in Japan, Australia, Hong Kong and China; a negative MSCI Asia-Pacific ex-Japan index; U.S. dollar strengthening to 92.26 with 10-Yr Treasury Yields drifting lower to 1.65% and Gold futures dropping to $1,737 an ounce indicate a negative and volatile outlook in Indian equity markets amid a channel-wise resistance and decoupling from global benchmarks
• Treasury Secretary Janet Yellen unveiled details of a plan to bring back about $2 trillion in corporate profits into the U.S. tax net. That would help fund the government’s spending initiatives, potentially reducing reliance on more borrowing that could drive rates higher
India Markets
India’s equity benchmarks closed lower on Friday trade, pressured by modest declines in index heavyweights Reliance Industries and ICICI Bank, while Hindustan Unilever gained on signs that coronavirus curbs could spur greater demand for daily-use consumer products
The blue-chip NSE Nifty 50 index dropped 39 points or -0.26% to 14,834 and the benchmark S&P BSE Sensex dropped 155 points or -0.31% to close at 49,591
Bank Nifty dropped 334 points or -1.02% to settle at 32,448
Broader markets out-performed headline peers — Midcap 100 index added 0.18%; Smallcap 250 index added 0.54% and Nifty 500 dropped -0.11%
Nifty P/E for Apr. 09 decreased to 33.53 from 33.61 with Nifty P/B edged lower to 4.24 from 4.25, as recorded by NSE India
India VIX or the barometer of nervousness in the market, moved down -2.60% from 20.31 to 19.78 levels
Overnight Call Money rate weighted average stood at 3.13% as per RBI data. It moved in a range of 1.90 — 3.50% for Apr 08
Under Liquidity Operations by RBI, Reverse Repo for the week (Mar 22 to Mar 28) stood below 5 lakh crores (4.93 lakh crores), marking lower surplus liquidity in the market
Yield curve on the benchmark 10-Yr government bond dropped to 6.02%, while the rupee downside extended to 74.7190 per U.S. dollar
Pharmaceutical stocks also jumped with FMCG, closing 3% higher. The gains came amid expectations that Indian drugmakers could see higher sales of medicines used to treat Covid-19, with Cadila Healthcare surging 9%
Investors banked on a pickup in demand for consumer staples and personal care items, sending the Nifty subindex for fast-moving consumer goods up as much as 1.3% to record highs, lifting the broader market as well
India’s state-run oil refiners have started making preparations snap up Iranian crude the moment U.S. sanctions are eased. This includes drafting commercial terms and putting in place mechanisms to quickly assess crude quality. Getting access to Iranian crude would bring a number of benefits, including cheaper barrels and a longer credit cycle, while the shorter voyage means savings on freight costs. China, meanwhile, has recently boosted purchases from the sanctioned nation to about 1 million barrels a day
“A pickup in demand and delivery similar to the previous lockdown is now expected for FMCG companies, but the pickup will not be as great as it was last time,” said KK Mittal, investment advisor at Venus India Asset Finance.
“We are witnessing some uptick in demand across impacted geographies for our hygiene portfolio under the Savlon brand, as well as food brands including Aashirvaad flour, Yippee noodles and ITC MasterChef frozen snacks among others,” an ITC spokesman said.
“Purchase of fruits, vegetables, snacks and personal care items had risen by about 40% in cities such as Mumbai, Pune and Nagpur,” said Hari Menon, founder of online grocery retailing website BigBasket.
America Markets
All three main US stock indexes ended the week on a high note on Friday trade on the back of a stimulus and vaccine-fuelled improvement in the economic outlook that fed expectations about a swifter economic recovery
The broad-based S&P 500 added 0.77% to 4,128
The Dow Jones Industrial Average, composed mostly of cyclical stocks, gained 0.89% to 33,800
The tech-heavy Nasdaq Composite Index added 0.51% to 13,900
U.S. equity futures dropped in early Monday trade. S&P500 futures is dropped -0.27%; Dow Jones futures is down -0.26% and Nasdaq futures is down -0.25%
10-Yr U.S. Treasury yields, which move inversely to the price, rose to 1.66% in early Monday, after higher-than-expected producer prices data for March that showed inflation perked up, in line with other upbeat reports that suggested the world’s largest economy was on a stable path to recovery from the pandemic. Dollar edged higher to 92.26
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” fell -1.53% to 16.69 on Friday
Data on Friday, showed U.S. producer prices increased more than expected in March, resulting in the largest annual gain in 9-1/2 years, fitting in with expectations for higher inflation as the economy reopens amid an improved public health environment and massive government funding. Inflation is expected to heat up this year, driven by pent-up demand. Most economists and Federal Reserve officials believe higher inflation will be transitory because of labor market slack
The sluggish progress of Covid-19 vaccination outside the U.S. is a key threat to the economic outlook, Federal Chair Jerome Powell said, echoing calls to address the widening disparity between rich and poor nations
Investors will shift their focus to the U.S. earnings season next week, with profits at S&P 500 companies expected to jump 25% in the first quarter, according to Refinitiv IBES estimate
“I think the market is willing to give a little benefit of the doubt to the Federal Reserve, which said that the first wave of inflation would be transitory,” said Lou Brien, market strategist at DRW Trading in Chicago. “There seems to be an uneasy tension, but we do seem to have fallen into a level on yields where we’re willing to hang out until we get to a resolution.”
“We got a taste of what faster progress will look like with the March employment report: close to a million jobs,” Mr. Powell said. “We want to see a string of months like that so we can really begin to show progress toward our goals.”
Asia-Pacific Markets
Asian stocks edged lower in early Monday trade
Shares fell in Japan, Hong Kong, China and fluctuated in South Korea and Australia
Japan’s Nikkei 225 dropped -0.35% to 29,659 and Topix 500 dropped -0.02% to 1,523
South Korea’s Kospi added 0.05% to 3,132
In Hong Kong, Hang Seng dropped -0.96% to 28,423 and Hang Seng China Enterprises dropped -0.80% to 10,888
In China, CSI 300 fell -0.81% to 4,993 and Shanghai Composite fell -0.53% to 3,432
Australia’s S&P/ASX 200 dropped -0.28% to 6,975
Japan’s industrial sector is expected to benefit from a rebound in global capital expenditure and rising investment to ease a shortage in semiconductors. Looking ahead to next week, one factor that could limit equity gains is the Japanese government’s plan to place Tokyo under a new, month-long “quasi-emergency” state to combat surging Covid-19 case numbers
China’s factory gate prices in March rose at their fastest annual pace since July 2018, official data showed on Friday, as growth in the world’s second-largest economy continued to gather momentum. Recent economic data has been robust, but analysts warn that it could lead to concerns of inflation and policy tightening
China slapped a record $2.75 billion fine on Alibaba Group after an anti-monopoly probe found the e-commerce giant had abused its dominant market position for several years. The State Administration for Market Regulation said that Alibaba, which is listed in New York and Hong Kong, had been preventing its merchants from using other online e-commerce platforms
South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, on Friday adjusted rules to raise domestic stock allocation for the first time in a decade, in a move to reduce pressure to sell local equities. The NPS will review the portfolio rebalancing periodically going forward to improve the pension fund’s profitability and stability
“Japanese equities may slow down relative to other markets,” Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management Co said. “Markets are placing a lot of emphasis on the size of fiscal stimulus and the vaccination rate. More restrictions would be a negative factor because that would delay a recovery in services consumption.”
EU Markets
European stocks were subdued on Friday trade, but marked their longest weekly winning streak since Nov 2019 as hopes of a rapid recovery in economic growth offset doubts over the euro zone’s Covid-19 vaccination programme
The pan-European Stoxx Europe 600 added 0.05% to 432 and Stoxx 50 added 0.03% to 3,978
Germany’s DAX30 added 0.21% to settle at 15,234
London’s blue-chip FTSE 100 dropped -0.38% to settle at 6,915
France’s CAC40 added 0.06% to settle at 6,169
Global sentiment was underpinned by the U.S. Federal Reserve’s pledge to keep its super-easy policy in place even as data showed the world’s largest economy kicking into higher gear
London equities outperformed last week, with the domestically focused FTSE mid-cap index notching a record high as Britain gradually emerges from a strict winter coronavirus lockdown
ECB board member Fabio Panetta said that European Central Bank should accept no further delay in lifting inflation back to its target of 2%, which they have already undershot for nearly eight years and as the projections go, the bloc will continue to miss it for years. After the ECB ramped up stimulus last month, inflation is seen to rise to 1.4%by 2023
ECB policymakers discussed a smaller increase in bond purchases under the PEPP and agreed that the central bank did not need to use the envelope in full if favorable financing conditions could be maintained, the accounts of the March’s meeting showed. Also, officials noted that that the pick-up in nominal yields reflected almost entirely markets’ reappraisal of the inflation outlook; while it was argued that higher real rates were not necessarily a cause for concern and should not trigger a policy intervention if they reflected higher growth prospects rather than higher real term premia. Last month, the ECB said it would conduct emergency bond purchases at a significantly higher pace over the April-June period, aiming to bring government bond yields down and to support the Eurozone economic recovery
“The year has been without a major correction so far, and with equity inflows continuing to hit new multi-year highs the sense of ‘irrational exuberance’ is building once again,” said Chris Beauchamp, chief market analyst at IG. “Some measure of caution would seem to be the prudent approach until a more comprehensive conclusion can be drawn.”
Oil & Natural Gas Markets
Crude-oil prices extended losses in early Monday trade weighed down by a stronger dollar, reducing the appeal of commodities priced in the currency with higher-than-expected producer prices in March stoking inflation concerns
West Texas Intermediate futures ended last week, down 3.5%, the biggest weekly loss since mid-March. With the OPEC+ planning to start raising output, markets are now focused on whether the demand recovery will be enough to absorb growing supplies. While consumption is climbing in India and the U.S., rising virus cases and the possibility of stricter travel limits in Europe are muddying the forecast and putting pressure on crude
Saudi oil giant Aramco entered into a $12.4 billion deal with a consortium of investors led by EIG Global Energy Partners that would give the investor group a 49% stake in Aramco’s pipeline assets. Total is poised to go ahead with a $5.1 billion plan to tap more than a billion barrels of Ugandan crude and ship it across east Africa by pipeline
WTI Crude is trading at $59.49 per barrel
Brent Crude, the international benchmark for oil, is trading at $63.20 per barrel
Natural Gas futures slipped to $2.519/MMBtu
“If we get some hotter inflation readings, that could send Treasury yields higher again, negatively impacting oil,” said Edward Moya, senior market analyst at Oanda Corp.
“The Covid situation has really not had a strong recovery in Europe and across many emerging markets, and that’s really weighed down the demand outlook for oil,” said Edward Moya, senior market analyst at Oanda Corp.
“We’re towards the lower end of the range on concerns over the global economic recovery,” said Gary Cunningham, director at Stamford, Connecticut-based Tradition Energy. “Until we start to see some jet fuel demand come back, Asian demand pick up and European countries ease restrictions, prices may not surge much higher in the near term.”
Commodities Markets
Gold prices fell in early Monday trade, weighed down by a jump in U.S. Treasury yields and a rebound in the dollar
In a potential flip to gold’s safe-haven appeal, U.S. Fed Chair Jerome Powell signaled that the central bank is nowhere reducing its economic support and warned an uptick in Covid-19 cases could slow the recovery. Plus U.S. producer prices increased more than expected in March, resulting in the largest annual gain in 9 years. This type of potentially inflationary environment is generally viewed as supportive for gold
Gold is in a “bottoming-out phase” with support at a low of $1,680 an ounce and an upper bound of $1,760 an ounce
U.S. Gold futures (Comex) is trading at $1,737 an ounce
Silver futures (Comex) is trading at $25.11 an ounce
Gold / Silver Ratio dropped to $69.18
Copper futures (Comex) steady at $4.0030 per pound
In India, Spot Gold is trading at INR 46,423 per 10 grams
“While overall, gold market is bullish short-term, with expectations of a break higher through $1,760-65, caution about fresh 10- and 30-year (Treasury) auctions and the CPI report next week are keeping yields supported, keeping gold’s advance in check,” said Tai Wong, head of base and precious metals derivatives trading at BMO. “Yields are driving most markets at (the) moment, directly impacting U.S. dollar and stocks and all three matter to gold with varying impact.”
Currency Markets
U.S. dollar index, DXY edged marginally higher to 92.26 in early Monday trade, paring some of the week’s losses, as a stronger-than-expected rise in U.S. and Chinese inflation gauges drove up bond yields
U.S. producer prices increased more than expected in March, fitting in with expectations for higher inflation, driven by pent-up demand. Most economists and Federal Reserve officials believe higher inflation will be transitory because of labor market slack
The dollar was also helped by data showing a second straight monthly drop in industrial production in Germany, further boosting the likelihood of Europe’s biggest economy having contracted in the first quarter
INR weakened with USD / INR at 74.7190
EUR weakened with EUR / USD at 1.1900
GBP weakened with EUR / GBP at 0.8683
GBP weakened with GBP / USD at 1.3707
“I guess this may only be a pause with the U.S. dollar selling likely to resume so long as the Fed’s patient rhetoric remains unchanged, especially this early in the anticipated inflation cycle,” Stephen Innes, chief global market strategist at Axi, said.
| 3-Month LIBOR Rate | As on 09 Apr 2021 |
| US DOLLAR | 0.19 per cent |
| Euro | – 0.55 per cent |
| British Pound | 0.08 per cent |
| Swiss Franc | – 0.75 per cent |
| Japanese Yen | – 0.07 per cent |
Bitcoin
Bitcoin / U.S. Dollar fell -0.30% in early Monday trade to $59,799 as of 07:45 a.m. I.S.T.
Bitcoin’s performance over the last year is directly aligned with movements in bond yields. When yields rise, so does bitcoin. This implies that the digital currency benefits directly from the “reflation trade” — or the belief that inflation is coming.
British research firm Quant Insight Ltd. shows bitcoin’s key sensitivity is to inflation breakevens. The same is true of gold. The difference, at present, is that bitcoin is positively correlated with breakevens, gaining when fears about inflation rise, while gold is negatively correlated
The current drive in bitcoin therefore looks like a bid to protect against currency debasement, by means of a measured transfer from gold, which is deemed the weaker anti-fiat asset for the moment. Is bitcoin really that direct a substitute for gold? It’s a tough proposition to handle
For now, bitcoin fills a demand for a wider array of alternatives to fiat currencies at a time when many are deeply skeptical of monetary policy, while also promising the kind of exciting growth that tech stocks have done. It’s understandable that there would be wide demand for such an asset. And while that demand is strong, it is aided by that other universal force in markets; fear of missing out
“Bitcoin seems to have it all. It is one of the few assets that seems to benefit from a rising bond yield – something we reserve for true growth stocks and those cyclicals enjoying recovery. Conversely, this is normally detrimental to traditional low-growth safe assets such as gold, defensive yield stocks and bonds. Unlike defensive stocks and bonds, Bitcoin and gold are both inflation-sensitive, but gold is happiest when the world faces a downward spiral. In contrast, Bitcoin prefers a stronger economy, when the yield is rising. This is where we are today,” said Charlie Morris, chairman of ByteTree
Bond Markets
Americas : 10 – Year Govt Bond Yields
United States : 1.66%
Canada : 1.49%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.30%
United Kingdom : 0.77%
France : -0.05%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.02%
Japan : 0.10%
Australia : 1.75%
South Korea : 2.04%
Fund Flows on NSE, BSE and MSEI — 09 Apr 2021
FII/FPI Net Sell Rs (653.51) Crore in Capital Market
DII Net Sell Rs (271.26) Crore in Capital Market
Where We’ve Been Reading —
- Bloomberg
- The Wall Street Journal
- Reuters
- Trading Economics
- Seeking Alpha
- Axios
- Tech Crunch
- NSE Indices India
- Morningstar India
- The Star
- Harvard Business Review
- The Economic Times
