- Positive start to new month and quarter for risk
- OPEC+ decision due – key risk for oil and energy stocks
- S&P 500 passes 4K for first time
- Q2 could be a different story
It has been a positive start to April and the second quarter from a risk point of view, with US indices surging. The S&P 500 crossed the 4K level for the very first time. Economic data has been mixed with jobless claims rising unexpectedly sharply to 719 from 684K, easily surpassing 675K expectations, while the ISM manufacturing PMI looked solid as it printed 64.6 for March as new orders and employment sub-indices rose. All eyes are now on the imminent OPEC+ decision and US jobs report on Friday. Still, there is a risk that with the long weekend break upon us and given the fresh lockdowns in some parts of Europe, we will see some profit-taking later on in the day – especially if oil prices slump in reaction to the OPEC’s decision.
OPEC+ debating gradual increase
Throughout the talks it looked like the majority of OPEC+ members supported 1-month rollover. However, judging by the latest headlines, Saudi Arabia is said to have no objections to a gradual increase of oil output from May. If the group does decide on a gradual output starting from May, this could see crude oil, which was coming sharply off earlier highs, fall today. Read more here
Stocks start April on the front-foot, but what about the rest of Q2?
It appears like so far European investors are not too worried about the latest lockdowns and delays in re-openings. All non-essential shops in France are set to close from Saturday and there will be a ban on travelling more than 10km from home without good reason. Investors will be hoping that the renewed bullish momentum on Wall Street will be enough to keep the bull run intact ahead of the Easter holidays.
Starting from this quarter, hopefully things will slowly get back to normal as more and more people are vaccinated. The key question is whether the pace of vaccinations will pick up in mainland Europe. So far it looks like summer holidays in the region might have to be put on hold. The renewed spike in virus cases, extensions of lockdowns in Germany and introduction of new curbs in France are certainly not a great sign. Against this backdrop the ECB is likely to keep pumping liquidity into the financial markets, keeping European stocks supported and the euro undermined. The UK’s relative success in curbing the virus and the pace of vaccinations means domestic demand is likely to fuel a stronger recovery in the coming months. This should keep the pound supported against the euro and other currencies where the central bank is likely to remain more dovish than the Bank of England.
Meanwhile in the US, the economy is expected to recover strongly, fuelled by massive monetary and fiscal stimulus. President Joe Biden’s ambitious plan to rebuild US infrastructure has added to the growth outlook. But the Republican opposition to the plan raises questions about how much can actually be delivered – and when. By the time this is potentially passed, the markets will have priced in its impact. Meanwhile the Fed has so far insisted that the current monetary policy stance is appropriate. But if inflation starts to rise more rapidly then the US central bank will have to re-think about keeping its QE taps wide open. Any signs of policy tightening could be negative for equities. The dollar has already started to climb in anticipation that the Fed will be among the first major central banks to tighten its belt. Further gains for the dollar will weigh on commodity prices and trigger renewed falls for EM currencies.
Source: ThinkMarkets and TradingView.com
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