COVID COMEBACK
COVID-19 was meant to be in retreat by now but in many countries — India, Japan, Thailand — it has staged a comeback.
India in particular was seen as this year’s growth leader with a 10%-plus rebound. Those hopes have been sunk by a second wave of the pandemic that has seen daily infections rise to the highest recorded anywhere. The central bank highlighted risks to the economy, with officials noting that “monetary and fiscal policies have already used most of their space”.
The rupee is down 2.7% against the dollar in April, a month when the greenback itself was weak, Indian stocks have logged a third week of losses and bad loan fears are mounting.
The impact will be felt globally, from commodities to consumer goods. Given India is the world’s third-largest oil user, crude prices are under pressure. Worryingly, the longer the crisis lasts, the greater the chances that new vaccine-resistant virus mutations will emerge.
WAITING FOR THE FED
The Federal Reserve’s policy meeting ending April 28 may help markets glean how it might respond to U.S. economic recovery and higher inflation after consumer prices rose by the most in more than 8-1/2 years in March.
Fed chairman Jerome Powell sees inflation “a little higher” this year but remains committed to limiting any overshoot, according to a letter sent to Senator Rick Scott.
Ten-year yields have stabilized and the inflation rebound to 2.6%, well above target, is likely to be short-lived. Still, swaps show that market expectations of future inflation are rising and that means Treasury volatility may not be over yet.
FANG ALERT
Around 86% of U.S. firms have beaten earnings expectations so far and forecasts overall are for 33% Q1 growth. In coming days, Facebook, Apple, Google-parent Alphabet and Amazon will show how the tech heavyweights are faring.
Apple earnings are seen up some 32%. Tesla meanwhile reports on Monday and its revenues are forecast to have grown by 71%, Refinitiv I/B/E/S data shows.
Their performance may be key to how stocks do — while near record highs, U.S. equities face a thicket of obstacles, from the expected peak in U.S. economic growth to White House plans to nearly double taxes on capital gains for the wealthy.
ACHTUNG
It’s rare for markets to get excited about German politics. But as chances rise of the Greens becoming a key member of the next government, investors are waking up to election risk in Europe’s largest economy.
Annalena Baerbock will be the first Green candidate for chancellor in the 40-year history of the party, which has overtaken the conservative bloc in one poll.
In-fighting and a face mask procurement scandal have hurt the ruling CDU/CSU alliance. The choice of centrist Armin Laschet as their candidate to succeed Angela Merkel as chancellor, over the more popular Bavarian Markus Soeder, may hurt its chances in September’s election.
A future government comprising the Greens could see increased spending on climate friendly projects and a push for deeper European integration. It explains why German Bund yields are near seven-week highs.
JAPAN’S LIFERS
Japan’s flows data on Thursday is a hot item for markets.
February’s spike in U.S. Treasury yields was, after all, at least partly attributed to Japanese buyers’ absence from the market.
Japan’s largest life insurance firms have been reluctant to add to Treasury holdings — fearing higher U.S. inflation will trigger a repeat of the first quarter’s brutal bond selloff and currency volatility. Some plan to sell foreign bonds and buy yen securities.
Japanese investors bought a net 906 billion yen ($8.39 billion) of foreign bonds last week, down 47% from the previous week. A further slowdown in net purchases, not to mention a swing to net selling, has consequences for Treasuries.
At home too, the Bank of Japan may not welcome insurers’ plans if flows strengthen the yen. The BOJ’s April 26-27 meeting is expected to deliver a downbeat forecast for inflation.
