International Communique No. 288 – 20th April 2021


Last week ended with equity indices continuing their ascension. Large-scale vaccination is continuing at a rapid pace, even in Europe. The US dollar lost momentum, allowing the euro to climb to 1.20 amid a hopeful mood amongst traders and the Fed’s relaxed attitude towards future rate hikes.

Strangely, the latest economic data, which were on average better than expected, have caused yields on US Treasury bonds to retreat since mid-April. On 10-year paper, the return is 1.58%. Growth signals – especially the strong momentum in consumer spending – have been positive. Investors are less concerned about the inflation threat, having switched to believing the Chair of the Federal Reserve’s repeated assertions that the price uptick will be temporary as business recovers from the depths. The fact remains that we are operating in unprecedented conditions. Markets are figuratively on a knife edge, capable of swinging from a state of euphoria to distress in no time at all, as sell-offs affecting various sectors and investments styles in equity markets have shown recently. In short, broad indices are advancing but also zigzagging from day to day between value and growth, responding as economies open up or are locked down again.

The European automotive sector has gained from the increase in new car registrations, which rose by 87% in March, up from their nadir in the same month last year, and by 3.2% in the first quarter of 2021, corresponding to 2.6 million units. Volkswagen’s sales jumped 53% in March, while Daimler’s profits were one-quarter higher than expected, at EUR 5.75 billion. The price effect and shortages combined with the surge in Chinese demand to drive earnings higher. Manufacturers have invested heavily in electrification and self-driving technology. The threats relating to the deep-seated changes affecting the industry change may well become opportunities.

The rise in Chinese GDP (+18%) has fostered broad confidence in economic growth. Some of this is of course smoke and mirrors, given the dreadful numbers last year. However, the recovery is still unparalleled. By contrast, the Chinese equity market is pinned back by the People’s Bank of China, loathe to let a speculative bubble form. In Japan, exports rose by 16.1% in March year on year, marking the sharpest monthly rise since November 2017. Imports rose by 5.7%. Industrial production in February dipped by 1.3% but this was not as bad as expected.

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