Potential tailwind for cotton prices
16 Apr 2021According to the US Department of Agriculture (USDA), the global cotton market is expected to be tighter than before owing to more robust demand and lower beginning stocks. Global ending stocks are set to decline 93.5mn bales in 2020/21 which is 1mn bales lower than the prior estimate. USDA has downwardly revised its forecast for US cotton stocks at the end of the current crop year to 3.9mn bales, which marks its lowest level in four years owing to an upward revision of exports. This should help lend a tailwind to cotton prices.
Tech stocks bounce back strongly in April
16 Apr 2021Tech stocks have rebounded strongly in April after enduring a challenging month in March. As of 14 April, the tech-heavy NASDAQ Composite is swiftly moving towards record highs. Within the S&P 500 Index, top performing sectors month to date are information technology and consumer discretionary (which includes many large tech companies). This is notably different compared to the first quarter when energy and financials were consistently the top performing sectors.
The brightest spot in the energy complex appears to be carbon
16 Apr 2021Carbon futures have made strong gains since November last year. Carbon futures prices have risen to a new all-time high reflecting increasing economic activity, alongside a structurally tight market as policymakers strive for better environmental outcomes.
Broad baskets in favour among investors
08 Apr 2021Broad baskets continue to dominate global exchange-traded product flows for commodities. This is a notable shift from last year when broad commodities were generally an ignored asset class compared to other sectors such as precious metals. With many commodity sectors like industrial metals, agricultural commodities, and energy exhibiting strong performance in recent months, investors have turned to diversified baskets to capture the bull run. Flows into global exchange-traded products in broad baskets year to date has exceeded $6bn. Industrial metals are in second place, with inflows of just over $760m.
Source: WisdomTree, Bloomberg. Data as of 07/04/2021.
European equities are in the lead so far in local currency terms
08 Apr 2021After facing significant headwinds last year, European equities have bounced back strongly this year and are, so far, ahead of their US counterparts. As of 07 April, the Euro Stoxx 50 Index is up just over 11% (in EUR terms), while the S&P 500 Index is up just under 9% (in USD terms) year to date. When considering the effect of currency, US equities hold a slight advantage given the US dollar has recovered slightly in recent weeks after depreciating considerably since the second half of last year.
Improvement in US economic data helps lift sentiment
08 Apr 2021Equity markets have welcomed US economic data for March. Both manufacturing and services Purchasing Managers’ Indices (which are month on month measures of economic activity) have continued to be expansionary. Unemployment has fallen while consumer and business confidence indicators have improved (source: Trading Economics). Both the S&P 500 Index and the NASDAQ Composite Index have responded positively to the data at the start of April.
Oil price retreat as demand concerns loom
25 Mar 2021After making strong gains in the first half of March, oil prices have retreated in the second half of the month. This is due to a combination of the following: 1. Demand concerns as Europe and India remain in the grip of the pandemic, 2. General risk-off sentiment amid rising Treasury yields and sell-off in equities, 3. Speculative positioning shaking out after being elevated during the recent price hike and 4. Gains in the US dollar.
Rising Treasury yields lend support to the dollar
25 Mar 2021The US dollar’s value relative to a basket of world currencies depreciated considerably in the second half of last year. Historically, the currency has experienced long cycles of strength and weakness that are typically linked with the US twin deficit, i.e., a combination of current account and budget deficits. When the twin deficit widens, the currency depreciates. In recent weeks, however, the sharp increase in Treasury yields have caused markets to weigh the possibility of policy tightening from the Fed. This is lending support to the dollar.
The key drivers for equities beyond the rout caused by rising yields
25 Mar 2021In recent weeks, the sharp increase in long dated US Treasury yields has caused a pullback in equity markets across the board. Technology stocks and emerging markets have been hit particularly hard. Going forward, the outlook for equities for the remaining of the year rests heavily on the following forces: 1. Fiscal stimulus injection in the US, 2. Ongoing accommodative rhetoric from the US Federal Reserve (Fed), and 3. Cyclical optimism which combines hopes of a vaccine-led end to the pandemic and pent-up demand from consumers lifting economies and corporate earnings.