International leads equity markets higher
- Global equities rallied +0.7% in a holiday-shortened week, led up by international markets again, to take YTD gains to 11%. Sector performance was led by energy and real estate, whilst healthcare fell. Bonds stayed under pressure, whilst commodities hit highs. AMC Entertainment (AMC) +83% and Blackberry (BB) +38% led a so-called meme stock rebound.
- OECD was latest to raise global GDP growth outlook for 2021, to 5.8% from 4.2% as recent as December. This supports higher earnings, where expectations are +36% this year but still only a low +10% for next.
- Strong earnings growth is the key insurance policy against risk of lower valuations, as inflation and bond yields rise. Reflation favors commodities, cyclical sectors and international markets vs tech and US.
US labor report calms Fed tightening fears
- Friday saw a ‘goldilocks’ not-too-strong nor too-weak US jobs report, soothing fears the fast US recovery pace will force the Fed to start tightening policy early.
- We think Fed tightening will drive volatility but not a sharp market sell-off, as 1) Inflation and interest rate views have risen. 2) Equities already survived Q1 bond yield spike. 3) Equities rose strongly in 2013 despite its ‘taper tantrum’. We favour cyclicals, with their strong earnings growth and cheaper valuations.
Tourism surges as world re-opens
- The global economic re-opening and rebound has a long way to go. Vaccination rates are only 11% and ‘lockdown’ indexes at over 50 vs pre-pandemic 0.
- Tourism is the biggest beneficiary, after plunging -49% last year vs GDP ‘only’ -3.7%. US reopening is leading the way with airline spending +1,300% yoy, hotels +340%, and cruises +53%. Mexico, Spain, Italy are among the most benefited economies.
Crypto assets are building a new base
- Bitcoin was stable, despite a ‘breakup’ tweet from Elon Musk, whilst alt-coins saw gains, with the asset class building a base after its recent -50% correction, the 15th in the last decade. Crypto remains the best performing asset class YTD, with bitcoin +24%.
- Miami hosted the world’s largest bitcoin conference, Bitcoin 2021, where El Salvador announced plans to be the first country to adopt it as legal tender.
‘Dr. Copper’ and oil head commodity rally
- The Bloomberg Commodity Index is now +21% YTD. Copper has been a key global barometer with its many industrial uses. Its prices have risen to decade highs with rebounding Chinese demand, whilst political and labor pressures have impacted supply.
- Brent crude prices broke through US$70/bl, hitting 2-year highs, as OPEC+ agreed to continue to only slowly raise supply even as demand rebounds.
The week ahead: Inflation and Taper talk
- May inflation in US (Thu) seen rising to a ‘transitory’ +4.7% yoy peak, and China (Wed) to +1.0%, but producer prices +7%, stoking interest rates concern.
- European Central Bank (ECB) meeting (Thu) to stay dovish and avoid ‘taper’ talk despite recent inflation rises and double-dip recession recovery outlook.
- Real estate industry is in focus with the Nareit ‘REITweek’ event, whilst also see Gamestop (GME) earnings and Marqeta’ (MQ) US$1bn payments IPO.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.