Week from 10 to 16 May 2021
The week got off to a rocky start with investors turning away from tech stocks on fears over the threat for inflation and rate hikes across the globe. U.S. inflation indeed surged to its highest rate since the summer of 2008. The consumer price index rose 4.2% from a year ago, according to government data released on Wednesday. The sell-off in equity markets intensified after the news. The S&P 500 fell -4% from Monday to Wednesday while the Nasdaq plunged -5.24%. The VIX CBOE index spiked to its highest level since early March (above 28).
After their 3-day rout, the major stock indexes managed to reverse some losses as investors seeked to buy the dip in tech. Furthermore, Fed officials reiterated that price pressures resulting from the reopening of the economy would prove transitory and there was no “imminent” move to tighten monetary policy. The S&P 500 gained 110 points over the last two days (+2.73%) and the VIX index traded again below 19.
Yo-Yo Effect
Despite the end-of-week rebound, equity indexes only recouped some of the week’s lost ground. The Dow Jones Industrial Average fell -1.14% week-over-week, or 395 points. The S&P 500 was down -1.39%, and the Nasdaq Composite slumped -2.34%. Small cap stocks also finished in negative territory (Russell 2000 down -2.07%). Among the S&P sectors, market participants continued to back cyclicals such as financials (+0.28%) and materials (+0.08%) against tech (-2.23%) and communication services (-1.95%). Energy fell -0.83%, despite firm oil prices (WTI crude up +0.72%) after a cyber attack on top U.S. pipeline operator Colonial Pipeline.
European indexes outperformed their U.S. peers. The CAC 40 was flat while the DAX 30 was up +0.11%. By contrast, the FTSE 100 shed -1.21%. In Asia, the Shanghai Composite jumped +2.09% while the Nikkei plunged -4.34%. Indian stocks broke their winning streak (Nifty 50 down -0.98%) against the backdrop of festering Covid-19 situation. Korea’s Kospi followed suit (-1.37%) but the worst performer was Taiwan’s benchmark index (TWSE). It nosedived (-8.43%) from all-time highs to levels seen in early March on fears the country may raise its Covid-19 alert level soon.
Bond Yields Higher, Corporate Bonds Down, Gold Up
Yields rose on both sides of the Atlantic. The yield on the 10-year French OAT hit a 24-month high (+0.271%) while that of the German Bund closed at -0.126% (compared with -0.605% at the beginning of the year). In the U.S., the 10-year Treasury yield edged up to +1.626%. In credit markets, risk indicators flashed red in the wake of inflation jitters. Investment grade corporate bonds fell -0.43% in the U.S. and -0.47% in Europe. High-yield bonds also lost ground (-0.20% in Europe, -0.27% in the U.S.). Emerging debt was down -0.17% in local currencies. Elsewhere, gold rose +0.67% to $1,843.43/oz (spot), off a three-month high, while EUR/USD traded almost flat at 1.2135.
Bitcoin in Consolidation Phase
Tesla’s decision to suspend payments in Bitcoin for purchasing electric vehicles due to environmental concerns took a toll on the cryptocurrency market. BTC USD thus dropped -21% week-over-week, below the $46k threshold. Many researchers have shown that BTC consumes more electricity per year than a lot of countries. The bitcoin mining industry is energy-intensive and damaging because it requires the use of dedicated powerful servers that can never stop working.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2021-05-14/global
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