Sunday, May 30, 2021

Reopening Economy Gathers Momentum But Yet to Sway Central Bankers 

Weekly Market Update: Reopening Economy Gathers Momentum But Yet to Sway Central Bankers


- US stock markets climbed back to within striking distance of all-time highs in some cases, as May drew to a close. Growth and highly speculative groups outperformed that of the traditional value sectors. The mime/reddit stocks, in particular, recaptured investors’ imagination led by AMC which saw another round of dizzying gains sparking further debate over excessive risk taking within financial markets. Positive late-season retail earnings reports, and corporate commentary indicated consumer strength has returned to 2019 levels, and even accelerated into the current quarter. New home sales figures seemed to suggest that the surge is US home prices has caused some buyers to walk away from newly built homes. On Friday President Biden released the details of a $6T budget that is sure to get push back from Republicans as the infrastructure debate looked to drag into June.
- Inflation remained the overarching topic foremost in most investors’ minds. The narrative didn’t really change much though, despite the fact the Fed’s preferred measure of inflation, core PCE, saw the April y/y number reach its highest level since the early 90’s. Ahead of Friday’s PCE print a chorus central bankers on both sides of the Atlantic continued to stress what they believed was the transitory nature of the current price increases would allow them to remain decidedly patient in withdrawing support, while also hinting the time to start talking about tapering asset purchases could be coming at upcoming meetings. To that end the Kansas City Fed confirmed this year’s Jackson Hole meeting in August would be in person. Bitcoin continued to back away from all-time highs while WTI crude prices rallied into next week’s OPEC+ meeting. Treasury yields broadly moved lower spurred by central bankers’ comments. The Chinese Yuan broke out to its strongest level against the US Dollar in roughly 3-years. For the week the S&P rose 1.2%, Dow gained ~1% and the NASDAQ jumped 2%.
- In corporate news this week, Salesforce reported better-than-expected growth momentum in its Q1 and raised guidance, as the company nears completion of its Slack acquisition. Toll Brothers posted record earnings and said they continued to raise prices in excess of cost increases amid a rise in first-time buyers. Costco shares slipped as investors didn’t find its Q3 beat on top and bottom line to be good enough. Ulta Beauty shares lifted after the cosmetics chain reported better-than-expected profit and raised its full year guidance. Amazon confirmed an agreement to acquire MGM Studios for $8.5B as it aims to bolster its Prime library. A Dutch court ruled that Royal Dutch Shell has a legal responsibility to cut greenhouse gases by 45% by 2030. Two candidates from activist hedge fund Engine No 1 were elected to the Exxon board, along with potentially a third, after calling for changes to the oil and gas company’s climate change plans. Royal Caribbean received its first CDC approval to begin test cruises with volunteer passengers in June on one ship departing from South Florida.