Fresh record highs for US stocks, Strong US data, Oil's strong week, Gold shine

US stocks continue to make fresh record highs after a strong start to earnings season and solid economic data.  The reopening trade is still running strong now that the US has administered over 200 million COVID vaccines.  The breakdown of the correlation of better data and higher yields is also providing added fuel for stocks.  If Treasury yields remain stable between 1.50% and 1.70% over the next couple of months, that should allow US equities to continue to rise higher.  

Morgan

Morgan Stanley posted a great quarter but that was overshadowed with a $911 million loss tied to Archegos Capital.  The bank posted amazing revenue and profits but did see Goldman Sachs and JPMorgan eclipse them on equities trading.  First quarter revenue came in at $15.7 billion, 65% higher from a year ago, with an adjusted EPS of $2.22 v $0.99 y/y.  

US Data

US housing starts rose almost to a 15-year high, this will probably be the peak for the housing market.  US homebuilding surged 19.4% in March, significantly better than the 13.5% forecast and -10.3% prior reading.  

US consumer sentiment rose slightly as the stimulus check impact started to wane.  The preliminary April University of Michigan sentiment reading rose from 84.9 to 86.5, a slight miss of the consensus estimate of 86.5.  Inflation expectations popped higher for the 1-year from 3.1% to 3.7%, the highest level in almost a decade.  The 5-10 year inflation expectations ticked lower from 2.8% to 2.7%.   

FX

Dollar weakness appears to be the trade given the pullback with Treasury yields.  The euro is starting to look very attractive given the improvement with vaccine distribution and robust growth from China.  

The Biden administration’s first foreign-exchange policy report held off labeling Switzerland, Vietnam, and Taiwan as currency manipulators.  This is quite a different approach than the Trump administration and is expected to support a diplomatic approach with dealing with key trading partners.  The Treasury Department noted that close monitoring is warranted over China’s activities with state-owned banks.  

Oil

Crude prices gave back some of this week’s gains on COVID vaccine shortfalls and concerns that India’s Covid-19 surge is increasing the risks of creating new variants.  J&J vaccine pause and Moderna’s announcement that they will fall short of their vaccine delivery targets for the UK and Canada is a temporary setback for the short-term crude demand outlook.   The J&J clot issue is delaying a key single dose and easily stored vaccine solution.  An abundance of caution could mean we lose a week or two with the J&J vaccine, with some fearing that it will fuel greater vaccine hesitancy given the recent concerns with the AstraZeneca one.  

WTI crude is still poised to continue to rise higher on an improving crude demand outlook and expectations that both US and OPEC+ output will gradually increase over the coming months.  

Gold

Gold got its mojo back after Treasury yields retreated below key technical levels and China greenlighted banks to hold more gold imports.  Today is a great day for gold as its strength is accompanied with modest dollar weakness and a softer Bitcoin.  Gold’s bullish case is here as Wall Street awaits to see what type of inflation unfolds over the next several months.  Treasury yields will eventually grind higher, but now investors can become more upbeat on gold.  

Bitcoin 

Bitcoin stumbled after Turkey’s central bank banned the use of cryptocurrencies and crypto assets for purchases.  Turkey’s crypto market was rapidly growing as everyone wanted to abandon holding liras.  The outlook for the Turkish lira is for further pain and that is why the central bank is coming down on cryptocurrencies.  Turkish capital controls and further restrictions on lira movement is a regional story and should not pose a greater risk for Bitcoin.