Futures are up, led by the NASDAQ. First time we’ve been able to say that this week. Our global market screen is all green, led by China and Japan, both rising over 2%. Most major markets are still on pace to post sharp losses for the week. The Dow is down 2.2% and the S&P 500 has shed 2.8%, meanwhile the TSX is down just 1.7%. Tech stocks have been hit especially hard amid hotter-than-expected inflation data, pulling the Nasdaq down 4.6% for the week. Bonds are better bid this morning, causing yields tick lower. Despite the massive inflation beat earlier this week, U.S. 10s never even got close to challenging the 3-month high yield of 1.74%.
Oil is green again, and all is right in the world - at least out west. We haven’t mentioned it yet, but we are so glad that the ‘blip’ of negative prices for front month WTI is now out of our default one-year charts. Of course, when you go any further back like the chart below that strange two-day period is painfully obvious, which is why we usually change the ticker to the 2nd or 3rd month contract. While we’re on the chart, we should note that WTI prices are at an important point of resistance, bumping right against the highs from 2019 and Jan 2020. Should this break, the next major level would be $77/bbl. Not a prediction, just an observation.
One of our favourite market observers is Howard Marks; at present he is having trouble reconciling the market. He’s troubled that making money in today’s environment is nearly impossible for bargain hunters. “In the short term, I worry about not having great things to buy”, he notes in this Bloomberg interview. Oaktree is one of the largest distressed debt funds out there, and with so sign of risk aversion in the credit markets, ‘distressed debt’ is the dodo of the debt market.
The general theme about ongoing inflation is that it is transitory. The question that still remains is 'How long is transitory?'. This blog provides a nice breakdown on our current inflation situation and what to expect moving forward.
Diversion: Seems like Australia has a bit of a rodent problem.
Connected Wealth™ Tactical model
(% equity weight)
Our tactical fund is designed to complement your existing holdings to minimize portfolio volatility. To learn more, please click here.
Some years it really pays to be tactical, and 2020 was certainly one of those years with multiple all-time highs and a very deep multi-year low. Of course the hard part is how to be tactical. The Purpose Tactical Asset Allocation Fund / ETF is a quantitative rules-based portfolio best used as a sidecar strategy to add a tactical component to a portfolio. The main goal of Tactical is to get defensive quickly when markets turn negative, providing a stabilizer for the overall portfolio, while still capturing reasonable upside in rising markets. The asset allocation can range from 100% equity to 100% fixed income / cash. In the Primer we share our models, sensitivities, how and why we developed the strategy, analytics on what kind of market it works best, and what kind of market it does not work as well.
To learn more about how Tactical Asset Allocation can help your business please enjoy our most recent Tactical Primer authored by Craig Basinger.
Covid-19 restrictions and competition in the medical cannabis industry have been factors that influenced Aurora Canabis’s 25% decrease in revenue this quarter from a year earlier. After a year of restrictions around the world, Airbnb estimates for booking are demonstrating pent-up demand for travel. Additionally the company’s revenue for the quarter ending in March rose 5% to $887 million. Shares of Walt Disney fell as much as 5.3% following the company’s customer reports on their streaming service Disney+, which were nearly 7 million less customers than expected for the last quarter. Shares of DoorDash rose as much as 7% in extended trading following increased sales and a higher than expected revenue equivalent to $1.1 billion. CEO of Coinbase Global announced that the company is planning to offer Dogecoin on its trading platform.
Oil prices are back in the green this morning to finish off a fairly volatile week. At the time of writing, NYM WTI Crude futures are up +1.28% to US$64.64/bbl. ICE Brent Crude futures are up +1.34% to US$67.95/bbl. Seems like a general trend into risk on this morning that is elevating the price of Crude. With India still reporting north of 330,000 new cases every day there is a metaphorical cap that remains on prices. Karaikal Port in India invoked a Force Majeure as their operations have been significantly affected by the pandemic.
Gold Spot is up this morning as the fed continued their stance on accommodative monetary policy causing a dip in the US Dollar. At the time of writing, the yellow metal is up +0.45% to US$1,834.82/oz. If gold holds today, this will be the second weekly gain in a row. In other commodity news Copper is looking at its first weekly decline in over a month. At the time of writing, LME Copper is down -0.99% to US$10,342/ton. Rising inflation fears and a little dip in demand from China seem to be the major reasons why. A spiral in Iron Ore is also contributing to the price decrease in Copper. China has ramped up efforts to control prices by rolling out a ban on steelmakers from fabricating or spreading price-hike info. The city accounts for 14% of China's steel production and the government has vowed to punish violations by revoking licenses. From the peak a few days ago, Iron Ore is off as much as -15%.
Fixed income and economics
Looks like the Fed aren’t the only ones who will let inflation run hotter than target. In a somewhat meaningful shift in tone, Bank of Canada Governor was quoted yesterday indicating that the central bank is expecting consumer prices to rise above +3.0% over the next several months due to a similarly low base that transpired year ago (he specifically cited prices of travel and gasoline). While that’s above the +2.0% implicit target, he “expects inflation to come down after that” as “there are far too many Canadians out of work, and when you’ve got a lot of excess supply in the economy, that puts downward pressure on inflation”. In the virtual talk to Atlantic Canada universities, he added that "output in high-contact service sectors, such as retail stores and restaurants, remains almost -20% below where it was before the pandemic” which will further keep price pressures at bay. So we’ve got yet another “transitory” spike in CPI on the way just like our southern neighbors, which then begs the question of which central banks are actually going to flinch first and start to taper their QE programs (the hands being raised are few and far between right now). BCA Research’s Global Fixed Income Strategy team put out a piece earlier this week firmly believing that the Fed will not be the first to taper the pace of bond buying as their strategists determined that rising inflation expectations and increasing labor market tightness would both be required for the Fed to turn less dovish (with the latter still far away). For the ECB, they noted that realized inflation and the Italy-Germany government bond spread as a measure of financial conditions, were the most important indicators to watch before the ECB could consider any move to taper its QE programs. Officials at the BoJ simply cited a rise in realized inflation as the only possible development that could lead to a taper. Canada is question mark now in light of Macklem’s comments. So it looks like at this point, we can probably assume that no one wants to be first.
Chart of the day
Quote of the day
I trained 4 years to run 9 seconds and people give up when they don't see results in 2 months.