Launch Pad

Today

Futures are lower to start the week with the bond market rather flat. Don’t get too excited about one down day, the S&P 500 made a fresh new high on Friday closing at 4128. The VIX also just made a 52-week low on Friday closing at 16.7. Bond volatility and equity market volatility have been moving in the opposite direction for over a month now. We don’t expect this to change with over $270 billion USD of Treasury new issuance this week and a key inflation report; that could increase the pressure on an already shaky bond market.
 
Markets appear to be on firm ground as we head into earnings season later this week with the Goldman, JP Morgan and Wells Fargo reporting on Wednesday. Though valuations are undoubtedly stretched, we’ll now get to see if companies are willing and able to grow into these valuations. We’ll also be on the lookout for comments and concerns over inflation pressures and supply chain issues.
 
Alibaba is rallying with extremely heavy volume following the weekend news that China will slap Jack Ma’s baby with a $2.8 billion USD fine after their antitrust investigation. Bad news for the company, but investors hate uncertainty, and this removes the fear that the fine could have been much worse. The Chinese government said the retail giant stifled competition and violated their anti-monopoly law. The fine represents 4% of Alibaba’s 2019 domestic sales. The fine is three times higher than the $975 million fine China imposed on Qualcomm back in 2015.
 
The Canadian dollar is lower against most currencies, despite crude prices rising over 1% and topping $60/bbl once again. Risk off day begets some strength for the Yen and Swiss Franc, however the U.S. dollar isn’t exactly strong. It’s weaker against most European pairs, notably Euro and the British Pound. The latter is benefiting from a successful vaccine rollout, averaging 3.8 million daily doses. The U.K. has thus far avoided any third wave, with just a few thousand daily new cases last week. England is now opened to pints, shopping and haircuts.

On Thursday, Blackrock launched a new ETF called the U.S. Carbon Transition Readiness ETF. It was the biggest launch in ETF history, with investors pouring in $1.25B in its first day. The goal is to select companies that are prepared for the transition in Energy. However, it is best to look under the hood in these situations - the holdings correlation between the ETF and the S&P 500 is very strong. See for yourself by clicking on Portfolio. 

There has been a ton of 'easy money' made in the markets over the past 12 months. Many investors now ask themselves the same question, 'What happens after the stock market is up big'? Similar events have happened in history, and this author breaks them down. 


Diversion: NASA shared this remarkable photo of a sea of dunes on Mars.
 

Connected Wealth™ Tactical Primer

Some years it really pays to be tactical, and 2020 was certainly one of those years with multiple all-time highs and a very deep multi-year low. Of course the hard part is how to be tactical.  The Purpose Tactical Asset Allocation Fund / ETF is a quantitative rules-based portfolio best used as a sidecar strategy to add a tactical component to a portfolio. The main goal of Tactical is to get defensive quickly when markets turn negative, providing a stabilizer for the overall portfolio, while still capturing reasonable upside in rising markets. The asset allocation can range from 100% equity to 100% fixed income / cash. In the Primer we share our models, sensitivities, how and why we developed the strategy, analytics on what kind of market it works best, and what kind of market it does not work as well.
 
To learn more about how Tactical Asset Allocation can help your business please enjoy our most recent Tactical Primer authored by Craig Basinger.

Commodities

Oil prices are starting the week off in the green but with case counts rising globally, demand concerns still remain. At the time of writing, NYM WTI Crude futures are up +1.31% to US$60.10/bbl. ICE Brent Crude futures are up +1.41% to US$63.84/bbl. Prices have been rangebound the last three weeks as even with positive economic data and increased vaccinations prices are stuck due to once again, an increase in coronavirus case counts. Inventory data will be released tomorrow where many analysts believe that even with a large population in the U.S. vaccinated, gasoline is not being used as much as anticipated. 

Gold Spot price is flat this morning; at the time of writing, the yellow metal is up +2 bps to US$1,7443.49/oz. With yields mildly up and the US Dollar down Gold is caught in the middle as to how to react this morning. 

Fixed income and economics

While the kickoff to earnings season will take centre stage this week, a lot of eyeballs will be squarely focused on tomorrow’s CPI update out of the BLS. We’ve been inundated with inflation prognostications over the course of the past quarter from the likes of economists, central bankers and even President Biden himself, and the one common them that keeps popping up is that the cost of living is sure to be rising and will continue to do so. March CPI is expected to rise a tick from prior to +0.5% but more importantly, it’s the annualized print that will be worth the extra glance. Year-over-year inflation is poised to accelerate from +1.7% to +2.5% which factors in the start of the pandemic as its base and fully accounts for the year-long recovery that has seen no shortage of stimulus measures and easy money policy. And an upside beat could also be in the cars as Chair Powell indicated that inflation will be “base effect driven” and not “transitory” (meaning that it’s here to stay”. The toughest wildcard of all is the extent to which supply chain pressures on producer prices are being passed through to consumers in seasonally abnormal ways given all the bottlenecks over the past twelve months as final demand producer prices accelerated at the fastest pace since late 2011 last month (+4.2% y/y, +1% m/m). The number is highly correlated with headline CPI so don’t be surprised by an outsized beat. While it’s not the Fed’s preferred gauge, the reading will also inform expectations for the PCE measures on April 30^th as well.

Chart of the day
 

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Quote of the day
 

Twenty years from now you will be more disappointed by the things you didn’t do than by the things you did.  – Mark Twain