Highlight of the Day
Tech, Growth Stocks Retake Market Lead as Investors Eye Yields, Earnings
U.S. growth stocks have taken the market’s reins in recent weeks, pausing a rotation into value shares as investors assess the trajectory of bond yields and upcoming earnings reports
Tech has been the top-performing S&P 500 sector in April, rising 8% vs. a 5% rise for the benchmark index so far
The gains have followed a month’s-long rotation in which tech stocks were outpaced by shares of banks, energy and other economically-sensitive companies
The increases in many of these so-called value stocks have slowed lately, while U.S. Treasury prices have come galloping back in April after a sharp first-quarter sell-off. This suggests that some investors may have already priced in a rapid growth spurt that is showing up in economic data
One of the key drivers of the move in tech has been the Treasury market, with the benchmark 10-year note yield falling about 15 basis points in April to 1.58% in last week
Higher bond yields are particularly challenging for the performance of tech and other shares with high valuations and high expected future profits, as rising yields reduce the stocks’ values in many standard models
Many investors think the recent market shift is just a pause, with value and cyclical stocks due to regain command after years of lagging, as investors seize on shares expected to benefit most from what the Federal Reserve expects will be the strongest economic growth in nearly 40 years
Strategists at BofA Global Research recently issued a report listing five reasons for caution on stocks, including high valuations and outsized returns over the past year. The bank kept its year-end S&P 500 target at 3,800, some 9% below current levels. The index has risen 11% this year
“People are probably taking a little bit of a deep breath and saying, ‘OK, maybe rates aren’t going to go straight to (2.50%),” said Chris Galipeau, senior market strategist at Putnam Investments.
“Amid increasingly euphoric sentiment, lofty valuations, and peak stimulus, we continue to believe the market has overly priced in the good news,” BofA’s strategists said.
Market Highlights at 07:00 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading lower -0.33%, and the MSCI Emerging Market index is down -0.30%
• Trends on SGX Nifty look poised for a gap-down opening for Nifty 50 in India. The Nifty futures are trading 164 points or -1.09% lower at 14,479 on the Singaporean Exchange at 07:00 a.m. I.S.T.
• U.S. equity futures slipped in early morning trade after equity benchmarks hit all-time highs on Friday; alongside a mixed start in Asia-Pacific benchmarks gauges in early Monday trade with shares declining in Japan, and advancing in South Korea and Australia; a negative MSCI Asia-Pacific ex-Japan index; U.S. dollar weakening to 91.68 after a streak of declines with 10-Yr Treasury Yields declining to 1.56%; Indian rupee nursing earlier earlier losses at 74.4790 and Gold futures advancing to $1,778 an ounce, bolstered by a softer dollar and a sharp pullback in U.S. Treasury Yields in the previous sessions indicate a steady but volatile outlook in Indian equity markets amid a channel-wise resistance and a decoupling from global benchmarks
India Markets
India’s equity benchmarks closed higher on Friday trade, led by a 9% jump in Wipro after strong quarterly results, as investors momentarily shifted focus from surging coronavirus cases and awaited cues from further corporate earnings
The blue-chip NSE Nifty 50 index added 36 points or 0.25% to 14,617 and the benchmark S&P BSE Sensex added 28 points or 0.06% to close at 48,832
Bank Nifty dropped 135 points or -0.42% to settle at 31,977
Broader markets under-performed headline peers — Midcap 100 index added 0.98%; Smallcap 250 index added 0.85% and Nifty 500 added 0.49%
Nifty P/E for Apr. 16 increased to 32.84 from 32.78 with Nifty P/B edged higher to 4.18 from 4.17, as recorded by NSE India
India VIX or the barometer of nervousness in the market, moved down -2.33% to 20.40 levels
Overnight Call Money rate weighted average stood at 3.20% as per RBI data. It moved in a range of 1.90 — 3.50% for Apr 15
Under Liquidity Operations by RBI, Reverse Repo for the week (Mar 29 to Apr 04) rose above 6 lakh crores (6.13 lakh crores), marking higher surplus liquidity in the market
Yield curve on the benchmark 10-Yr government bond declined to 6.09%, while the rupee strengthened 74.4790 per U.S. dollar
Metal stocks advanced as benchmark iron ore prices rose on strong demand. Auto stocks also closed higher on Friday
Wipro’s shares rose 8% on Friday, a day after the Indian IT services firm reported a quarterly profit above analysts’ estimates, helped by growth across key verticals and large deal wins. The company reported a consolidated Q4 net profit of 29.72 billion rupees ($398.14 million), up 27.8% from a year earlier
India’s benchmark 10-year bond yield eased on Friday due to a late short-covering rally triggered by the Reserve Bank of India’s decision to not sell any of the 10-year paper on offer at the weekly government bonds auction
America Markets
U.S. equity benchmarks advanced on Friday trade, scaling new highs
The broad-based S&P 500 gained 15 points or 0.36% to 4,185
The Dow Jones Industrial Average, composed mostly of cyclical stocks, added 164 points or 0.48% to 34,200
The tech-heavy Nasdaq Composite Index moved up 13 points or 0.10% to 14,052
U.S. equity futures edged lower in early Monday trade. S&P500 futures is down -0.27%; Dow Jones futures is down -0.31% and Nasdaq futures is down -0.21%
Government bonds strengthened. 10-Yr U.S. Treasury yields, which move in the opposite direction to bond prices, fell to 1.56% in early Monday. Dollar is weak at 91.68
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” moved down -2.47% to 16.57 on Friday
Housing starts in the U.S. soared 19.4% month-over-month to an annualized rate of 1.739 million in March of 2021. It is the highest reading since June of 2006, easily beating market expectations of 1.613 million
The University of Michigan’s consumer sentiment for the U.S. rose to 86.5 in April 2021, from 84.9 in the previous month but below market expectations of 89.6. It was the highest reading since March 2020, mainly due to improving current economic conditions
U.S. retail sales rebounded 9.8% in March, the largest increase since May 2020, in a gain that pushed the level of sales 17.1% above its pre-pandemic level to a record high
Cathie Wood’s ARK funds bought more shares of cryptocurrency exchange Coinbase Global Inc on Friday while selling shares of electric carmaker Tesla. It sold 134,541 shares of Tesla, valued at $99.5 million and added another $64 million in Coinbase shares
U.S. Treasury Secretary Janet Yellen and Deputy Secretary Wally Adeyemo met with environmental groups on Friday to discuss ways to leverage the corporate tax system to help address climate change. She noted that President Joe Biden’s proposed tax changes would begin to modernize how the United States treats the fossil fuel industry by removing subsidies that date back to the early 1900s
In the U.S., investors will be watching for the latest reading of weekly jobless claims – after they dropped to a new pandemic low – to gauge whether upside momentum in the labor market is holding. Reports on manufacturing, services, new and existing homes sales are also due out
Asia-Pacific Markets
Asian stocks opened mixed in early Monday trade after U.S. stocks ended the week at all-time highs, with investors focusing on the economic recovery and upcoming earnings
Japan’s benchmark edged lower, while Australia and South Korea were in the green advanced higher
Japan’s Nikkei 225 dropped -0.16% to 29,639 and Topix 500 dropped -0.16% to 1,521
South Korea’s Kospi added 0.26% to 3,205
In Hong Kong, Hang Seng dropped -0.48% to 28,825 and Hang Seng China Enterprises dropped -0.87% to 10,931
In China, CSI 300 added 0.35% to 4,966 and Shanghai Composite dropped -0.33% to 3,414
Australia’s S&P/ASX 200 added 0.42% to 7,092
China’s economic recovery quickened sharply in the first quarter of 2021, propelled by stronger demand at home and abroad and continued government support for smaller firms. GDP jumped a record 18.3% year-on-year, as per official data, following a 6.5% growth in the fourth quarter of 2020
Though stocks lost ground for the week on persistent worries that recent upbeat economic data could reinforce Beijing’s policy tightening bias, even as Beijing had pledged no sudden policy shift
Indonesia is set to keep interest rates steady at Tuesday’s meeting
Japan inflation numbers are still likely to show falling prices ahead of a Bank of Japan meeting the following week that is set to show inflation failing to reach 2% during Haruhiko Kuroda’s stint as governor
Japanese export figures will offer an indication of how firmly world demand is recovering as the pandemic grinds on. Early April figures for South Korea will provide an even more up-to-date snapshot of the health of global trade, as will Taiwan export orders for March
EU Markets
European stocks ended at a record high on Friday trade marking its seventh straight week of gains, after strong U.S. and China economic data spurred optimism about a speedy global recovery, while upbeat results from Germany’s Daimler boosted carmakers
The pan-European Stoxx Europe 600 added 0.85% to 438 and Stoxx 50 added 0.99% to 4,033
Germany’s DAX30 added 1.34% to settle at 15,459
London’s blue-chip FTSE 100 added 0.52% to settle at 7,019
France’s CAC40 added 0.85% to settle at 6,287
Economists at Reuters have forecasted that the Euro zone economy will recover at a much weaker rate this quarter than expected only a month earlier, with a slower vaccine rollout among the biggest risks. Fitch has said it could take at least a decade for Italy’s debt-to-GDP ratio to return to its pre-Covid-19 level
ECB officials have begun pondering over an economic future free of the curse of the coronavirus. Dutch central bank Governor Klaas Knot favors tapering crisis bond purchases as soon as the third quarter, while his French colleague, Francois Villeroy de Galhau, cites March as a possible end date. President Christine Lagarde reckons monetary support will be needed “well into the recovery.”
Eyes will be on the European Central Bank meeting on Thursday
“The ECB will no longer have to fret about rising government borrowing costs when it meets on April 22. A full assessment of the pace of asset purchases will not happen until June, but the tone of this week’s press conference may offer some hints on the debate to come. The hawks are likely to focus on the successful containment of bond yields and the economic recovery, while the doves will be more cautious,” David Powell, senior euro-area economist said.
“The ECB will look through any temporary increases in headline inflation and will not accept any increases in bond yields unless they are the result of improved growth prospects,” ING said in a note.
“The good news continues to flow of both the corporate and economic fronts, after a very good start to the reporting season by the banks over the past few days. Now the focus becomes broader, taking in a wider range of sectors,” said Chris Beauchamp, chief market analyst at IG.
Oil & Natural Gas Markets
Crude-oil prices edged lower in early Monday trade, amid a slew of upbeat economic data out of the U.S. and China. Retail sales in the US grew the most since May 2020, while new applications for U.S. unemployment benefits fell to the lowest since the pandemic began in March 2020. In China, official data showed the Chinese economy grew a record 18.3% year-on-year in the first quarter of 2021
A weaker dollar makes oil cheaper for holders of other currencies, which traders say aids in supporting crude prices
WTI Crude is trading at $62.76 per barrel
Brent Crude, the international benchmark for oil, is trading at $66.30 per barrel
Natural Gas futures rose slightly to $2.671/MMBtu
“Better-than-expected stockpile data – both EIA and API – a weaker U.S. dollar and optimism surrounding more energy demand helped oil book its strongest daily gains since late March on Wednesday,” Griffiths said, referring to weekly data from the U.S. Energy Information Administration and industry group the American Petroleum Institute.
“We remain positive on Brent oil forecasting $80 (per barrel in the third quarter) on a near-term demand recovery and supply discipline,” Goldman Sachs analysts said.
Commodities Markets
Gold prices hit seven-week high in early Monday trade, bolstered by a softer dollar and a sharp pullback in U.S. Treasury Yields in the previous sessions
On the physical front, the world’s biggest gold consumer China has given domestic and international banks permission to import large amounts of gold into the country, in a potential fillip to gold prices
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 $1,778 an ounce
Silver futures (Comex) is trading at $25.94 an ounce
Copper futures (Comex) rebounded to $4.1680 per pound
In India, Spot Gold is trading at INR 47,265 per 10 grams
“The macro argument for gold has also improved. We are poised for a run towards $1,800,” said Edward Moya, senior market analyst at OANDA. “We’ve had many investors abandon some positions because of some extreme technical selling we saw with Treasury yields and that has really provided a strong backdrop here for gold prices to continue to appreciate.”
Currency Markets
U.S. dollar index, DXY dipped to an almost one-month low of 91.68 in early Monday trade
The benchmark 10-Yr Treasury yield dipped to a one-month low of 1.53% before steadying to 1.58% on Friday last week, moving further away from over a one-year high of 1.77% reached at the end of last month, even in the face of stronger-than-expected retail sales and employment data
Dollar had surged with Treasury yields to an almost-five-month high at 93.44 last month, on bets that massive fiscal spending coupled with continued monetary easing will spur faster U.S. economic growth and higher inflation, particularly compared to places like Europe. But bond and foreign-exchange markets now seem willing to give the Fed the benefit of the doubt that inflation pressure will be transitory and monetary stimulus will remain in place for years to come
INR weakened with USD / INR at 74.4790
EUR strengthened with EUR / USD at 1.1983
GBP strengthened with EUR / GBP at 0.8658
GBP strengthened with GBP / USD at 1.3832
“One of the biggest perceived risks to the 2021 recovery story playing out in financial markets is a bond tantrum – or a disorderly rise in U.S. yields,” ING’s global head of markets, Chris Turner said. “Thus, it has been surprising this week to see the large decline in U.S. yields, despite above consensus U.S. CPI and retail sales. We are tempted to say that DXY made an important corrective high at 93.44 at the end of March – and is now heading for a retest of the year’s lows at 89.21”
“From a cross-asset perspective, we are seeing a theme in markets, which seems similar to last year in the sense of falling real US yields, rising commodities, declining vol, strengthening equities and general dollar weakness,” Mikael Olai Milhøj, chief analyst at Danske Bank said.
| 3-Month LIBOR Rate | As on 16 Apr 2021 |
| US DOLLAR | 0.18 per cent |
| Euro | – 0.54 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 rose 1.29% in early Monday trade to $57,004 as of 07:00 a.m. I.S.T.
Bitcoin, the world’s biggest and best-known cryptocurrency, dropped -7.7% to $55,408 on Sunday, losing $4,624.21 from its previous close
The direct listing of the biggest U.S. crypto exchange is seen pushing tokens even more into the mainstream of investing, exposing legions of potential buyers to the digital asset class that have grown into a $2 trillion industry in little more than a decade. Bitcoin, the original and biggest crypto coin, is valued at more than $1 trillion alone after a more than 800% surge in the past year
Bond Markets
Americas : 10 – Year Govt Bond Yields
United States : 1.56%
Canada : 1.54%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.27%
United Kingdom : 0.76%
France : -0.01%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.09%
Japan : 0.08%
Australia : 1.73%
South Korea : 2.04%
Fund Flows on NSE, BSE and MSEI — 16 Apr 2021
FII/FPI Net Buy Rs 437.51 Crore in Capital Market
DII Net Buy Rs 657.55 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
