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Morning Market Wrap: ASX to rise as Wall Street posts record highs on stronger economic data

16 Apr 2021
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U.S. equities posted fresh all-time highs on Thursday boosted by stronger economic data and a decline in treasury yields.

Retail sales advanced +9.8% for March, topping estimates of +5.8% with the February figure also revised higher from -3% to -2.7% pointing to pent-up demand by consumers ready to spend. Meanwhile, initial jobless claims for April 10th were 576k vs 700k forecast while continuing claims for April 3rd was slightly higher than expected at 3.3731m vs 3.7m. Sentiment was further boosted as the US Centres for Disease Control and Prevention reported 125.8 million Americans have received at least one vaccine dose or 37.9% of the population. Despite the stronger economic data treasury yields declined where typically they would be expected to rise with analysts pointing to short covering as well as favourable demand from overseas and hedging flows. The 2-year yield was little changed at 0.159% while the 10-year declined -5.6 basis points to 1.576% and the 30-year declined -4.2 basis points to 2.269% flattening the 2-10 yield curve by -5.3 basis points to 1.42%.

The S&P500 jumped +1.11% to a new all-time high boosted by technology +1.79% and health care +1.74% with only energy -0.88% and financials -0.11% lower despite better than forecast earnings by some of the largest U.S. banks. The Nasdaq Composite gained +1.31% to be just -1.44% below its all-time high, the small-cap Russell 2000 rose +0.42%, the Dow Jones Industrial Average rose +0.9% also to a new all-time high and the VIX declined -2.47% to 16.57.

In Europe, the Euro Stoxx 600 rose +0.45% to new highs with the DAX also up +0.30%, as was the CAC40 +0.41% and commodity heavy FTSE100 +0.63% boosted by gains in metals. The Euro dipped -0.11% to 1.1967 and the Pound edged +0.06% higher to 1.3787 with yields across Europe dropping with 10-years ranging from -6.7 basis points in the U.K. to -3.3 basis points in Germany. Investors will focus on inflation data released at 19:00 AEDT on Friday with core prices expected to rise at +0.9% over the year to March from +1.1% previously.

*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.

The ASX looks set to rise although at a slower pace than Wall Street with ASX200 futures up +0.21% at 7,051. The benchmark index gained +0.51% on Thursday boosted by materials +1.83% and financials +0.43% while utilities -0.89% and communications -0.80% lagged. The Australian dollar gained +0.31% to 0.7752 after better than expected unemployment data for March which showed 70.7k jobs were added against estimates of 35k with the unemployment rate edging lower to 5.6% from 5.8% previously and forecasts of 5.7%. In an encouraging sign, hours worked jumped +2.2% reaching highs above pre-pandemic levels although with the participation rate still set to rise, dampening the pace at which space capacity is reduced.

Commodity prices were generally higher on Thursday although oil was mixed with WTI crude up +0.49% while Brent lagged -0.15% to US$63.46 and US$66.84 a barrel respectively. Base metals pushed higher led by gains in copper +1.97%, aluminium +1.33%, nickel +1.34% and iron ore +3.34%. The metals were pushed higher with speculation China will enact deeper supply cuts as part of a crackdown on industrial pollution and decreasing supply globally with Goldman Sachs raising their price forecast for copper to US$15,000 by 2025 supported by a transition to green energy. Precious metals rose boosted by weaker real yields, with spot gold reaching a six-week high up +1.58% to US$1,763.95 and spot silver up +1.68% to US$25.85 and Bitcoin gained +1.64% to a new all-time closing price of US$63,410.

Economic data:

  • Chinese GDP (QoQ Q1) 12:00
  • Eurozone Inflation (YoY Mar) 19:00
  • US. Michigan Consumer Sentiment (MoM Apr) 00:00

 

This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.

SHOW COMMENTS / QUESTIONS (15)

15
Comments

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Anonymous User

Hi, interested in your view on Strategic Elements (SOR), had gone up to 97c, now trading around 50c

Gobind D.

I am intersted in your opinion regarding GEM, ABClearning child care centre

John R.

As a blue sky punt, what do you think of Latrobe Magnesium Ltd. Just trying to get my crystal ball in sync with the future of battery technology!

Agustin Benitez

Hi John! Your question will be answered on the next Virtually Live to be published on Thursday, 5pm AEDT. Thanks!

Fred M.

Hi I just wanted to know your opinion about the effect of when the job keeper payments finish will have on the market? Regards Fred

Shannon Rivkin

Hi Fred,

To some degree, I think the market is anticipating an impact from the end of Jobkeeper and, on the back of the commentary from the banks, is pricing in some caution but how big an impact it has will play a role. We are definitely wary of this period but feel the banks are best placed to judge the future impact with the ongoing dialogue with their business and home loan customers. So, overall I would say we’re cautiously optimistic that the program has been successful and the economy can be weaned off it.

Regards,
Shannon Rivkin

Anonymous User

Sbm will be able to cross it’s historical high of 6 ? After all the price and production is getting better and when it was 6 it had much less to offer. Comments please!

Oliver Gordon

Hello, I get highs of around $5 a share from both July 2018 and February 2019. The share price has rallied quite a bit over the past 3-4 months, and with resistance at $4, not far above current levels, I would be surprised to see prices just continue higher at the recent pace. Also, what the gold price does from here will have a large impact. The price has recently gone to new all time highs above US$1960 an ounce, however it appears sentiment is getting very bullish at the moment, which often occurs closer to the end than the… Read more »

Riki S.

Hi Oliver – nice article.

As long as the US has a dysfunctional approach to virus reality and subsequent management, the economic risks are significant. There’s a complete and utter disconnect between the US equity market and the real economy, regardless of the typical forward looking perspective. The market sentiment is emotive, better to look at what’s happening in the bond market for something that is likely to resemble the underlying forward impact – if they push through recent low levels, then watch the …. hit the fan!

Brian S.

Why has ZEN dropped so much today? Doesn’t their latest report show that take over is still proceeding with the offer of $1.01 ?

Daryl L.

I bought more at this price Last Week! Good opportunity to park some $s for a Great return. VL recently confirmed this.

Shannon Rivkin

Hi Daryl,

Completely agree with you! Should be a stress-free parking spot.

Regards,
Shannon

Shannon Rivkin

Hi Brian,

I’m sorry I’m only getting back to you now as this question somehow slipped through the cracks. The short answer is that we have seen risk spreads blow out across all arbitrage investments. I don’t think this means the bid is less likely to go through but rather that the return required from investors is higher for their capital investments. The conditions attached to the deal look likely to be satisfied, so we remain happy for members to buy/hold at current levels.

Regards,
Shannon Rivkin

Anonymous User

Hello Shannon,, the banks stocks,, why have been in downtrend for nearly 5 years now?? Wespac example.. .. what is your opinion please?? target

Agustin Benitez

Hi!
Your question will be answered on Virtually Live this Thursday.
Thanks for your submission!

We are glad you liked it

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