Weekly market update : A tax revolution

04/12/2021 | 08:51am
April 12
Weekly market update
intro As the new earnings season approaches, risk appetite is still present on equity markets, with the global economic outlook improving significantly and ultra-accommodative monetary policies being maintained. Volatility has completely disappeared, which highlights the serenity of market participants.

Over last week, the red dominated in Asia. The Nikkei lost 0.3%, the Shanghai composite 0.4% and the Hang Seng 0.8%.

In Europe, the CAC40 rose to levels not seen since the late 2000s, with a weekly performance of 1.1%. The Dax gained 0.6% and the Footsie 2.8%. In the peripheral countries of the euro zone, Spain gained 0.3%, Portugal rose 1% and Italy lost 0.6%.

In the U.S., after setting all-time highs on Monday, the Dow Jones has generally stalled, recording a gain of 1.2% over the past five days. The S&P500 is also at its zenith, gaining 2% while the Nasdaq100 is back near its highs of the beginning of the year.

Dynamic rebound of the Nasdaq100


OPEC+ members agreed to "gently" increase their oil production in the coming months. This was all it took to see crude oil prices stall at the beginning of the week, as traders were certainly too used to relying on the accommodating policy of the enlarged cartel. As a result, Brent is trading around USD 63 while WTI has fallen back below USD 60 per barrel.

Gold and silver are finally recovering. Pressure is easing on precious metals, which have so far been weighed down by rising bond yields, investor appetite for equities and the rising greenback. Gold tested the USD 1750 line again, silver gained ground at just over USD 25 per ounce.

Copper rebounded above USD 9,000 per metric ton. More broadly, the base metals segment remains favorably oriented, as evidenced by the new advances in nickel (USD 16770) and lead (USD 1970).
Equities markets

We head to Hong Kong to discover Cosco Shipping Holding (code 1919), which is up a spectacular 30% after announcing a positive earnings revision. Indeed, the Asian shipping company saw its share price take off after announcing that the net profit for the first quarter of 2021 would be 2.3 billion dollars. A year ago, the bottom line was just $44 million.

The $27 billion company has benefited from several favorable factors. Indeed, the Hong Kong-listed company has benefited from both rising freight rates, due to a reduction in supply in the sector caused by the shortage of containers, and strong demand. On a year-on-year basis, prices rose exponentially from HKD 2 to HKD 12, an increase of over 450%.

Rise of Cosco Shipping Holding stock

Bond market

Optimism about the economic trend is gaining ground in the Eurozone. However, these favorable data did not have any decisive influence on the trajectory of Bund yields throughout this weekly sequence. The German bond reference is crystallizing on the level of -0.33% and this stabilization is also verified on the French OAT, which remains below the symbiotic zero (-0.07%).

The balance dominates other sovereign bonds such as in Spain (0.38%), Italy (0.66%) and Portugal (0.24%). Market participants seem to consider these 10-year yield levels as comfort zones.

In the U.S., stimulus plans, injecting hundreds of billions of dollars, are being superimposed without adding too much pressure on long-term rates. The Tbond is even seeing its benchmark fall slightly to around 1.65%.
Forex market

The dollar, which has been a star performer in recent weeks, fell back to USD 1.19 against the euro despite excellent statistics on the job market. The single currency recovered against its other main counterparts as the EUR/GBP rebounds to GBP 0.864, up 150 basis points. This recovery is duplicated against the yen at JPY 130.40 in a more risk averse environment.

Also on the continental front, the Swiss franc remains in demand against the dollar at CHF 0.93 (+130 points).

We have to go to Asia to describe the major movement of the last few sessions on the currency market and more specifically in India, with the rupee giving up more than 200 basis points against the greenback at INR 74.40 (see chart). A four-month low following the central bank's announcement to buy $14 billion more in bonds on the secondary market than it does in its recurring operations. This could imply excessive monetary growth putting pressure on the local currency.

Fall of the rupee against the dollar

Economic data

Chinese statistics all exceeded expectations. The Caixin Services PMI jumped to 54.3, the PPI rose 4.4% and the CPI 0.4%.

In the Eurozone, the week was shortened by Easter Monday. The figures were otherwise mixed. The unemployment rate rose to 8.3%, the PPI index was lower than expected (0.5% vs. 0.6% expected) and industrial production fell by 4.7% in France and 1.6% in Germany.

On the positive side, the PMI services indexes were a pleasant surprise (49.6 in the euro zone, 48.2 in France and 51.5 in Germany).

For the United States, the ISM services index soared to 63.7 and the PPI index rose to +1% (consensus 0.5%). On the other hand, industrial orders disappointed (-0.8%), as did weekly jobless claims at 744K.
A tax revolution

In addition to implementing an effective vaccine campaign, the United States will benefit from the colossal investment spending proposed by Joe Biden, which has the direct consequence of boosting the entire stock market, crushing volatility in the process.

As a counterpart to this generosity, a tax revolution could take place both in the country, with higher taxes paid by companies, and on a global level, with minimal taxation of companies. These same economic actors will then have to increase their margins in order to maintain their profitability. It is not clear that this will be done with the same serenity as today.
Patrick Rejaunier
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