Friday’s disappointing US jobs report doesn’t appear to have dimmed investor appetite for equities; on the contrary, the fact the report fell short has raised expectations that we’ll see the full $1.9trn stimulus package make its way through both houses.
We managed to clear the first obstacle after US Democrats managed to push the package through the Senate, with the help of vice-president Kamala Harris’ casting vote at the end of last week. Some on the Republican side still appear determined to water down the size of the Democrats' plan, along perhaps with some more hawkish Democrats, however for now expectations are growing that most of it will make its way into the US economy.
Bond markets certainly appear to be making that calculation as 10-year treasury yields hit their highest levels since last March, while the gap, or spread between 2-year and 10-year yields hit its widest levels since April 2017. This widening gap appears to be a consequence of increasing expectations of rising inflation pressure, with some early indications of higher prices being reflected in recent prices paid data from the most recent ISM numbers.
US stocks managed to post their best week since last November in the wake of Friday’s non-farm payrolls numbers, and this has translated into a similarly positive Asia session, with the Nikkei 225 posting its best daily close since the end of 1990.
Crude oil prices also appear to be getting a lift from all of this recovery optimism, with Brent back at $60 a barrel, however it's hard to escape the elephant in the room, which is that these higher prices could act as a brake on consumer demand, prompting demand destruction, and snuffing out any nascent recovery. Of course with these higher prices, the consensus and discipline among Opec+ members could start to fracture as some countries break ranks to ramp up production in order to take advantage of this move higher.
European markets have opened very much on the front foot, with the German DAX opening at a new record high, while the FTSE 100 has also opened higher, driven by UK banks, with Lloyds and NatWest Group both making early gains, and the basic resource sector, led by BHP and Anglo American. The Italy FTSEMib is also doing well, on optimism that former ECB president Mario Draghi will be able to form the next government, and have better luck than his predecessors in steering a course to recovery for an economy that has gone nowhere in the last 20 years.
In M&A news, Reading-based chip designer Dialog Semiconductor, whose clients include Apple, has said it has agreed to sell the business to Japan’s Renesas Electronics for €4.9bn. Dialog had previously been in discussions with STMicro; however, it would appear that Renesas has deeper pockets. While the deal is unlikely to face scrutiny from UK regulators, the fact that the CMA is looking at the recent deal between Nvidia to acquire ARM Holdings from Softbank there is a risk that we might see them cast an eye over this one.
Rolls-Royce shares are lower after the company announced plans to close its jet engine plants for two weeks in the summer to try and stem losses from its civil aviation business. Experian shares are also lower on reports of a data leak at its Brazilian business Serasa Experian, which it says it is investigating.
AstraZeneca shares appear to be shrugging off another setback this morning around its Oxford vaccine after South Africa suspended its vaccination programme, saying that the Astra vaccine is less effective against its own variant, particularly against mild disease. The headlines around the Oxford vaccine have certainly been more negative than positive, particularly around efficacy rates, with French president Emmanuel Macron also casting his own aspersions against it, for reasons only he can know. In response, AstraZeneca scientists have said they are developing a new vaccine to improve the efficacy of this new variant.
While all of this is a little concerning, it rather misses the point that the vaccine does appear to prevent instances of severe disease, hospitalisation and death, thus taking the pressure off health services. Surely this is the most important factor, at a time when health care staff are on their knees. When it comes to the Oxford vaccine, it appears there are a number of people who are attempting to make the perfect, the enemy of the good, which is concerning at a time when the Oxford vaccine, from a logistics point of view, is probably the easiest to roll out, given its higher storage temperature.
Boohoo shares have come under pressure this morning after reporting that it has agreed a deal to acquire Burton, Dorothy Perkins and the Wallis brands from Arcadia Group, on top of the deal announced at the end of last month to acquire Debenhams' online business, which included its digital marketplace and beauty business.
Amid all of this optimism, the US dollar is slightly lower this morning while bitcoin is back close to the $40,000 level as enthusiasm returns to crypto trade.
US markets look set to open in a similarly positive vein with the S&P 500 set to open at a new record high, just shy of 3,900, as the furore around GameStop retreats ever further into the rear-view mirror leaving a wasteland of small retail traders nursing huge losses, after the shares fell 80% over the week. AMC Entertainment whose shares were also pumped higher also fell heavily last week, raising questions over the actions of some billionaire investors, who ought to have known better who helped pump up the frenzy, and who now have gone very quiet in the aftermath of last week’s retail bloodbath.
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