The holiday-shortened week capped off a strong first quarter for global equities. The S&P 500 Index hit the 4,000 milestone for the first time on Thursday with U.S. President Biden's infrastructure proposal capturing the headlines this week, unveiling a massive $2.25 trillion infrastructure plan for the U.S. economy.
The proposal is a follow-up to the $1.9 trillion economic relief bill passed earlier this month and proposes spending over eight years on infrastructure, manufacturing, research and development, and clean energy, among other things. To cover the costs, Biden wants to raise corporate taxes to 28% from 21%. The plan also seeks a minimum tax on profits U.S. corporations earn overseas, increasing the rate to 21% from roughly 13%.
U.S. economic data was also supportive with consumer confidence increasing to its highest level since the onset of the pandemic, and manufacturing activity expanding in March at the fastest pace since 1983. Meanwhile, unemployment data was less impressive, with unemployment claims increasing to 719,000, up 61,000 from the previous week. Just under 10 million Americans currently remain without work.
Earlier in the week, the ripple effects from the previous week’s implosion of the hedge fund Archegos Capital Management, which operated as a family investment vehicle continued to be felt in global markets as Archegos was forced to liquidate large positions in widely held stocks through discounted “block trades”, momentarily driving share prices lower.
Eurozone inflation accelerated in March to 1.3% from 0.9% in February due to higher energy and non-processed food prices. The ECB expects that there will be a temporary increase in inflation, but eurozone inflation will remain below the 2% target in the years ahead. Meanwhile, the final estimate of gross domestic product (GDP) in the UK for the 4th quarter fell by 7.3% (annualised), less than market expectations for a decrease of 7.8%.
China and Iran signed a deal aimed at their economic, political and trade relations over the next 25 years, in a challenge to the Biden administration. China agreed to invest $400 billion in Iran over 25 years in exchange for a steady supply of oil. The deal could deepen China’s influence in the Middle East and undercut American efforts to keep Iran isolated.
The 400-metre-long MV Ever Given (Evergreen) vessel that blocked the Suez Canal for almost a week was finally freed on Monday, allowing traffic to commence along the world’s most important trade arteries.
The Nasdaq (+2.60%) and S&P 500 (+1.14%) were stronger, whilst the Dow Jones Industrial Average (+0.24%) was more muted. European markets including the FTSE 100 Index (-0.05%) and Euro Stoxx 50 (+2.05%) were mixed against stronger performances from Japan’s Nikkei 225 (+2.32%) and China’s Shanghai Composite Index (+1.93%).
Market Moves of the Week
The ANC has given its senior and provincial leaders facing criminal charges the choice to voluntarily step down from their positions within 30 days or face suspension by the party. This was revealed by President Cyril Ramaphosa following the party’s extended national executive committee which concluded on Monday night. The announcement signals that Secretary-General Ace Magashule will have to leave his post next month.
The JSE All Share Index ended the week up +0.60%, with the industrial sector (+1.71%) leading the market higher compared to the resource (-0.85%) and financial (+0.15%) sectors that were mixed. Overall, it has been a strong quarter for the local bourse, returning 13.18% to shareholders. By Friday close, the rand was trading at R14.66 to the U.S. Dollar, strengthening against all major developed currencies this week.
Chart of the Week
It has been the worst quarter for U.S. government bonds in some decades. Not even the Federal Reserve’s insistence that it will keep financial conditions as lenient as possible has been enough to keep longer-dated bond yields down. As a result, the Bloomberg Barclays Treasuries index has fallen more than 4% for the quarter, the first time this has happened since 1980. The assumption in the market, is that more inflation is coming; and that the Fed will have to raise rates in due course to deal with it.