Market Weekly Review: Strong Data Drives Risky Markets! Cryptocurrency craze again! The US is sanctioning Russia! Breeding a new round of geopolitical risks!

April 12 Financial Market Rounding up: Optimism ran high this week as strong U.S. economic data and corporate earnings gave investors a sense that recovery prospects were well under way. In spite of higher US inflation data, markets were reassured by the Fed’s pledge not to tighten monetary policy soon. At the same time, cryptocurrencies have seen another significant rise, especially Dogecoin’s 400% rise in a week. But on the other hand, the United States announced sanctions against Russia, which opened a new round of geopolitical risks.

FX markets: The dollar index continued to slide this week, opening at 92.19 and closing at 91.54 before hitting a one-month low of 91.48. It fell 0.5 percent for the week, extending last week’s 0.9 percent decline. Treasury yields continued to fall as investors agreed with the Federal Reserve’s repeated pledge not to tighten monetary policy because of temporary increases in inflation. Despite the week’s stronger-than-expected inflation, retail sales and jobs data, the yield on the 10-year Treasury note fell from a more than one-year high of 1.776% in March, hitting a one-month low of 1.528% at one point.

COMmodities markets: Gold rose to a seven-week high on Friday, hitting as high as $1,783.78 an ounce and Posting its biggest weekly gain since mid-December, up 2% for the week. US Treasury yields and a retreat in the dollar have boosted gold’s appeal.

Stocks: For the week, the Dow is up 1.19%, the S&P 500 is up 1.38%, and the Nasdaq is up 1.1%. Investor sentiment has been boosted by upbeat economic data and earnings. Investor sentiment has been buoyed this week by a raft of economic data showing a rebound in consumer spending, sentiment and the labor market.

Strong US economic data! Earnings season is on!

U.S. retail sales rose 9.8 percent in March from the previous month, compared with expectations for a 5.9 percent gain, the biggest gain in 10 months.

U.S. retail sales rebounded sharply in March as Americans received extra aid checks from the government and a rise in vaccinations allowed the economy to restart more broadly, cementing expectations of strong growth in the first quarter. At the same time, rising temperatures and rapidly improving sanitation have allowed more restaurants to serve food. Going forward, the accelerated pace of COVID-19 vaccination and the easing of restrictions will further support sales, particularly in sectors hit hardest by the distancing measures.

Bloomberg said $1,400 bailout checks to individuals and strong job growth last month could explain why retail sales rebounded so strongly in March. Increased vaccination and loosening of vaccination restrictions are also likely to support sales, particularly in retail categories that are most affected by social distance restrictions.

Separate data showed initial claims for state unemployment benefits fell by 193,000 to a seasonally adjusted 576,000 in the week ended April 10, the lowest level since mid-March 2020. Economists had forecast initial claims of 700,000 last week. The data further buoyed sentiment.

U.S. consumer prices rose at their fastest pace in more than 8 1/2 years in March, ushering in what most economists had expected to be a brief period of inflation. The Labor Department reported that the U.S. consumer price index (CPI) rose at an annual rate of 2.6% in March, the highest level since August 2018. The CPI is expected to increase 2.5%, compared with 1.7% last month. The U.S. CPI rose 0.6% month-on-month last month, the highest since July 2020, after rising 0.4% in February.

But Fed Chairman Colin Powell and many economists believe the rise in inflation is temporary and supply chains are expected to adapt and become more efficient. Bond and currency markets now seem willing to give the Fed the benefit of the doubt that inflationary pressures will be temporary and that monetary stimulus will continue for years to come. “One of the biggest risks to the financial market recovery in 2021 is a bond panic, a disorderly rise in US yields,” said Chris Turner, global head of markets and head of research for the UK and central and eastern Europe at ING. “So the sharp fall in Treasury yields this week was surprising, even though US CPI and retail sales were higher than consensus expectations.” “We tend to think that the index hit a significant correction high of 93.44 at the end of March and will now retest the year low of 89.21,” Turner said.

U.S. Treasury yields and a pullback in the dollar boosted the appeal of gold, which rose to a seven-week high on Friday and posted its biggest weekly gain since mid-December.

Meanwhile, a bright start to the earnings season from big U.S. banks gave a further boost to global equities, led by U.S. stocks. Three of Wall Street’s top banks, including JPMorgan Chase, Goldman Sachs and Wells Fargo, reported strong results Wednesday. JPMorgan reported a 25 percent jump in trading revenue, with total revenue for the quarter of $33 billion, above expectations of $30.4 billion. Goldman Sachs also benefited from strong trading growth, while Wells Fargo’s revenue also beat analysts’ estimates, rising to $4.7bn.

Morgan Stanley is the last of the six largest U.S. banks to report results. Morgan Stanley reported first-quarter net income of $15.72 billion, up 65% from a year earlier, while net profit was $4.12 billion, up 142.6% from a year earlier. Adjusted earnings per share for the first quarter were $2.22, compared with 99 cents a year earlier. Specifically, investment banking contributed $2.613 billion to Morgan Stanley’s revenue in the first quarter, up 128% from a year earlier. The biggest growth was in equity underwriting, where revenue jumped 347% to $1.502 billion.

The optimism lifted the Dow above 34,000 for the first time in its history, and the S&P 500 closed Friday at a record high of 4184.50.

  • The Fed continues to be “dovish” about not withdrawing support

Despite the strong recent economic data, San Francisco Fed President James Daley said the U.S. economy still has a long way to go to reach the central bank’s 2 percent inflation and full employment goals.

Fed Governor Christopher Waller said Friday that the economy is about to take off, but there’s still no reason to start tightening policy. “I think the economy is ready to recover,” Mr. Waller said in an interview. “There’s more work to be done on that front, but I think everyone is getting more and more comfortable that we’ve got it under control, and we’re starting to see it in the form of economic activity.”

That echoed comments by Fed Chairman Jerome Powell in several speeches over the past week that policy makers would consider short-term price increases while the labor market remains weak.

Federal Reserve Chairman Jerome Powell said Wednesday that the U.S. economy accelerated into the spring. However, Mr Powell and other Fed officials said that brighter economic forecasts and higher inflation in the short term would not affect monetary policy and that the Fed would continue to provide support until the crisis was over.

He said policy makers would wait for inflation to reach 2 per cent on a sustained basis and for the Labour market to fully recover before considering raising rates. This is unlikely to happen before the end of 2022.

“The majority of the committee did not think there would be a rate hike in 2024,” Powell said Wednesday at a virtual event hosted by the Economic Club of Washington. “But that’s not the committee’s forecast, that’s not what we voted on or acted on as a group, that’s really just our assessment. The market is paying too much attention to what we say about the economic forecast, and I’m going to pay more attention to what we describe as the results.”

Powell said the United States was entering a period of faster growth and job creation, and the main risk was another surge in COVID-19 cases due to strains of the virus that could be harder to treat.

“The market is betting that there will be higher inflation requirements and that the Fed is not particularly concerned about inflation becoming a serious problem right now,” said Bart Melek, head of commodity strategy at TD Securities in New York.

Carlo Alberto De Casa, chief economist at Activtrades in New York, said the market believes the Fed will keep interest rates lower for longer, so even if inflation jumps above 2 percent in a matter of weeks or months, the central bank’s tapering of its bond purchases is still a bit far off.

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