Inflation concerns, sparked by a surge in commodity prices has seen the much loved high growth technology sector continue to come under pressure. Despite reporting record earnings, driven in part by the covid-19 pandemic accelerating performance, the potential for higher interest rates appear to have raised concerns that the futures cash flows may not be dented by higher discount rates. This comes despite the potential for the US Federal Reserve to keep interest rates low as the US labour market surprised to the downside with an April non-farm payrolls report of only 266,000 new jobs added versus expectations of 978,000.
Over the last week, the Dow Jones is higher by 1.79%, the S&P 500 by 0.57%, the Nasdaq Composite lower by 1.70% while the Small Cap Russell 2000 Index has shed 1.40% week-on-week.
Over in Europe, the EuroStoxx 50 is higher by 0.78% week-on-week, while the FTSE 100 is higher by 0.96% over the same period.
The Unum “One Big Thing”
This week, all eyes will be on the US inflation data, which is expected to be released on Wednesday at 2.30pm SA time. Since Q3 2020, we have seen inflation expectations rise sharply, with the reading being at a multi-year high
In term of the effect on risk assets, any reading above expectations may further fuel the the sell-off however, like the payroll figures which surprised to the downside, any reading below expectations could be a short term positive for growth stocks that have sold off over the near term.
The ProShares Inflation Expectations ETF has been one chart that we’ve been watching since late last year and our analysis of it has guided us in setting expectations around inflation going forward.
Inflation concerns have escalated due to the surge in commodity prices.
Over the last week there has been a divergence in performance, with US Corn underperforming, shedding over 4% while Brent Crude Oil, despite the cyber-attack on the pipeline, is also lower week-on-week.
In terms of the gainers, a cup of Starbucks may cost you more as both Coffee and Sugar prices have been rising, while Copper continues to trade above $10,000 per tonne, supporting global commodity shares.
New IPOs This Week
This week we have eight new IPOs in the US, of which we’ll highlight two.
Hear.com (Code: HCG) – The group, which provides hearing care products and services to consumers in nine countries, has filed proposed terms for a $300 million U.S. IPO. They’re looking to issue 16 million shares between $17 and $20 each.
Similarweb (SMWB) – The web analytics firm is looking to issue 8 million shares between $14.00 and 16.00.
We’re having a look at 3 ETFs which represent country indices in US Dollar terms. While the comment has been made that equities as an asset class are ‘expensive’, we think that there are opportunities in markets that are well below their multi-year highs. For example, Spanish and Russian equities may offer recovery plays while the Canadian equity market has been flat to close to 14 years and now only is breaking out to new highs on the back of the resurgence in commodities and financial shares.
- Van Eck Russia (RSX)
- iShares MSCI Spain (EWP)
- iShares MSCI Canada
If a particular region appears attractive, our trading desk has the ability to purchase these ETFs within an offshore fund.