Week in Review: Strong Economic & Earnings Data

Major U.S. indices reached new all-time highs this week, supported by strong economic and earnings data. The Dow surpassed 34,000 for the first time, as rising demand, vaccine rollouts and strong first earnings releases point to an accelerating recovery.

U.S. retail sales soared 9.8% in March compared with February, marking the second-fastest monthly acceleration in the last 30 years. The boost was largely driven by consumers spending a portion of their $1,400 stimulus cheques that were part of the $1.9 trillion stimulus package passed in March. At the same time, a Philadelphia Fed manufacturing gauge improved to the strongest reading since 1973 and production in U.S. factories increased in March by the most in 8 months following the weather-related setback in February.

The week also brought important U.S. inflation data. The consumer price index rose 0.6% from the previous month and 2.6% from a year ago. The year-over-year gain is the highest since August 2018 and ahead of the 2.5% market’s estimate. Fed Chairman, Jerome Powell said that the Fed remains committed to supporting the recovery and will start tapering asset purchases well before policy makers consider raising interest rates. He added that the combination of those two factors was unlikely to occur any time before 2022.

U.S. first quarter earnings season got underway this week with 22 of the S&P 500 companies scheduled to report results. Banking shares including JPMorgan Chase, Goldman Sachs, and Wells Fargo showed strong growth. Analysts polled by FactSet currently expect overall earnings for the S&P 500 to have grown by roughly 25% in the first quarter on a year-over-year basis, the most since the sharp cut in corporate tax rates that took effect in 2018.

The U.S., South Africa and European Union (EU) temporarily stopped the rollout of the Johnson & Johnson (J&J) Covid-19 vaccine after six women in the U.S. who received the vaccine developed a rare and severe form of blood clotting - over 6.8 million doses of the J&J have already been administered in the U.S. Meanwhile, Denmark became the first country in the EU to drop AstraZeneca’s vaccine from its Covid-19 inoculation program amid concerns over serious but extremely rare side effects.

Bitcoin reached an all-time high this week, as bullish sentiment gained steam due to the Nasdaq listing of Coinbase Global Inc. the U.S.’s largest cryptocurrency exchange. Coinbase’s share price spiked as high as $429.54 (implied valuation of $112 billion) before ending 14% lower.

England, which has now vaccinated almost two-thirds of its population, started reopening shops, personal care services, and outdoor dining this week. The UK economy grew 0.4% in February, helped by an improvement in retail and wholesale sales.

China’s economy grew by 18.3% year over year in the first quarter, albeit versus a very low base in 2020, when stringent shutdowns were imposed to contain the initial COVID-19 outbreak.

Global equity markets were mostly positive this week with strong performances from the Dow Jones (+1.18%), S&P 500 (+1.37%), Nasdaq (+1.09%), FTSE 100 Index (+1.50%) and Euro Stoxx 50 (+1.36%) against softer performances from Asia including Japan’s Nikkei 225 (-0.28%) and China’s Shanghai Composite Index (-0.70%).

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Market Moves of the Week

South African retail sales surprisingly increased by 2.3% in February, compared to market expectations for a decrease of 1.8%. Retail sales had recorded a revised drop of 3.7% in the previous month.

Governor Lesetja Kganyago said that: “As long as inflation remains contained, the central bank would have no reason to remove the accommodation that we are currently providing,” during an interview with Bloomberg TV on Thursday.

The JSE All Share Index ended the week up +2.24%, with all the major sectors including industrials (+2.08%), financials (+2.66%) and resources (+2.54%) stronger. The rand was also stronger this week trading at R14.31 to the U.S. Dollar by Friday close.

Market Moves of the Week - 18 April 2021
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Chart of the Week

U.S. Core Inflation, inflation that excludes food and energy is what matters most to the Federal Reserve and where a true return to inflation psychology should show up in the data. Despite U.S. headline inflation advancing ahead of the market’s expectation in March, core inflation is barely back into its standard range since the deflationary shock of the financial crisis a decade ago. It also remains safely below the Fed’s 2% average target level.

Chart of the Week - 18 April 2021

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