The Bears are taking charge of Wall Street following Friday’s gains and investors are bracing for a market pullback. The NASDAQ future is underperforming with a -0.45% loss. The S&P 500 mini is -0.2% lower with the Dow mini down -0.14%. There’s little willingness to chase the market at current levels with the indexes at or near record highs, given no new bullish catalysts and some ongoing worries over the virus and concerns over vaccine rollouts with the pause in J&J.
However, we still see a bullish undercurrent amid reopenings and stability in Treasuries. The Dow mini is off of its overnight low after a Q1 Coca-Cola earnings beat.
Weighing on the NASDAQ is a weakness in Tesla after 2 people were killed in a crash of one of its “autonomous” cars (reportedly no one was driving), while Peloton is off after regulators warned overusing the treadmill if there are young children or pets in the home. Bitcoin is recovering from some of its Sunday slumps. Attention will be on the heavy earnings slate this week.
My biggest concern is the decreasing dollar. We continue to watch the US dollar lose value (-7.47%) as the S&P 500 (+36.15%) increases. Looking a the chart there seemed to be a move in July 2020 which we think was the stabilization of Covid-19, but it could also be triggered by the first stimulus bill.
It is not a true inverse correlation but should send alarm bells to US investors. We have seen some analysts predict the trend to continue and even go into the low 80s. This of course could cause huge issues for all markets.
Oil Action: WTI crude remains firm, but still off of Friday’s one-month high of $63.88, peaking at $63.41 highs in London morning trade, and sitting near $63.40 in early N.Y. Upped demand forecasts from OPEC and the EIA last week, along with better recent China data, tensions between Israel and Iran, U.S. sanctions against Russia, and a weaker dollar have supported, though new Covid lockdowns, particularly in India, as cases surge there, could again weigh on the demand side of the equation.
Corporate offering update: this week’s slate is expected in the $30 bln to $35 bln regions after record-setting bank issuance last week. A record $15 bln deal from BoA topped the prior high of $13 bln from JPMorgan; there was also a $6 bln offering from Goldman Sachs. Hedging that heavy corporate slate last week reportedly contributed to the hefty rally in Treasuries.
Spreads widened 1 bp to finish at 89 bps on Friday and remain below the above 90 bp spreads from March. Morgan Stanley has announced a benchmark 3-part offering including a 3NC2, a 6NC5, and a 21NC20. EIB plans a $4 bln 3-year. Tokyo Metropolitan has a 3- and 10-year offering. And there is a $500 mln 10-year deal from JICA. The Treasury calendar includes a 20-year reopening and a 5-year TIPS.
Treasury Market Outlook: global markets are posting modest changes in mixed trading amid a lack of fresh catalysts. Treasuries are fractionally in the green but have given up their beat levels with the 10-year yield at 1.576% with the 2-year at 0.1159%. Similarly, the Gilt rate is at 0.757%. Yields on the Continent are moderately higher the Bund up 2 bps to -0.245%. The JGB finished 0.5 bps lower at 0.079%. Equities are quiet. U.S. futures are about 0.25% lower, but after new record peaks on the S&P 500 and Dow. Bitcoin was slammed on Sunday amid worries over possible Treasury regulations but has pared losses.
Across the Pond, the FTSE is 0.2% higher while the DAX is about 0.1% lower. Asian shares closed firmly in the green, led by China with the CSI up 2.4%. A lot of the focus this week will be on the ECB meeting and what’s said about PEEP. Earnings also top the list as the calendar really starts to heat up. Today’s slate has Coca-Cola, IBM, Prologis, M&T Bank, United Airlines, and Crown Holdings. There is no data or Fedspeak scheduled. The corporate calendar could be of interest after heavy bank issuance last week.