Week In Review: Big Bets. 30 April 2021

Week In Review:  Big Bets

US equity indexes were slightly lower on the week: DJIA -0.5%, S&P 500 0.0%, NASDAQ -0.4%. However, the S&P 500 and NASDAQ reached new highs prior to giving up their gains on Friday. US economic data were strong – personal income in March surged 21.1% at a monthly rate reflecting the arrival of stimulus checks. Personal consumption expenditure rose 4.2% on the month. The economic rebound is both supporting market sentiment and causing some worries about rising bond yields, which results periodically in a pullback in equities. 

In last week’s note, we wrote about one under-appreciated aspect of US equity indexes’ stellar run-up post the pandemic-panic – the support provided by foreign investors.  Foreign inflows into US equities were historically elevated in 2020 at around 3.5% of 2020 GDP. So far in 2021, these trends have mostly persisted or even accelerated – monthly TIC data for January and February show foreign purchases of $152bn and $146bn respectively.

Who is betting big on US exceptionalism? Work by the Exante Data Team shows that the largest portion of these foreign inflows into the US have been from European investors. Total portfolio equity outflows from the Eurozone have also been historically elevated, and account for ~60% of overall inflows in 2020.

Our Exante Data Team points out, “We note the elevated European flows to foreign (US and RoW) equities have increased the US and foreign allocation in overall investment fund portfolios, while the domestic allocation to equities has been relatively stable. European investment funds are historically overweight equities overall, but the US equities allocation is the one that sticks out, having moved from 11% in 2018 to 14% before the COVID crisis and 16% since.”

Big Bets: The chart below shows equity portfolio flows from the monthly TIC data for the major European sources against the quarterly (lagged) European aggregate from the US BoP (black line). It suggests that European purchases of US equities have remained VERY strong into Q1 2021, with the latest monthly data for February showing large equity purchases from the UK as well as the Benelux countries. 


Ahead Next Week: Select economic releases. Next week sees monetary policy decisions by the BoE , Norges Bank, RBA, Banco Central do Brazil, Thailand, and Turkey. We will get both the April ADP employment and the ISM Non-mfg Employment Index prior to the US April Payroll release on Friday. Note, US Payrolls and Canada Employment are both released this Friday. 
Monday, May 3: Holiday UK and Japan, Norway Mfg PMI (Apr), EZ Mfg PMI (Apr), Germany Retail Sales (Mar), Germany Mfg PMI (Apr), Turkey CPI (Apr), Fed Chair Powell speaks – Community Development, US ISM Mfg PMI (Apr), Brazil Trade Balance (Apr), Australia Trade Balance (Mar), China Caixin Mfg PMI (Apr), RBA Monetary Policy Decision. 
Tuesday, May 4:  Holiday Japan, UK Mfg PMI (Apr), US Trade Balance (Mar), Canada Trade Balance (Mar), NZ Employment (Q1). 
Wednesday, May 5: Holiday Japan. Thailand monetary policy decision, Germany Composite PMI (Apr), EZ Composite/Services PMIs (Apr), ECB’s Lane speaks on current status of ECB’s monetary policy strategy review, US ADP Employment (Apr), US ISM Non-Mfg PMI (Apr), Brazil Monetary Policy Decision, China Caixin Services PMI (Apr). 
Thursday, May 6: Norges Bank Monetary Policy Decision, UK Composite/Services PMIs (Apr), EZ Retail Sales (Mar), BoE Monetary Policy Decision and monetary policy reportTurkey Monetary Policy Decision, ECB Economic Bulletin, US Initial jobless claims, China Trade Balance (Apr), Korea Current Account (Mar). 
Friday, May 7: Taiwan Trade Balance (Apr), RBA statement on monetary policy, Germany Current Account Balance/Trade Balance (Mar), Mexico CPI (Apr), Brazil Retail Sales (Mar), US Payrolls (Apr), Canada Employment (Apr), Canada Ivey PMI (Apr), Russia CPI (Apr). 


USD Comment

USD was stronger on the week, with its gains coming on Friday. Though the DXY Index reached a one month low this week, it retraced on Friday, pushing well through 91.00 resistance to end the week at 91.30. The slightly odd price action likely reflected (unpredictable) month-end dynamics. With the S&P 500 flat on the week, the dollar generally traded in-line with the signal from risk assets. Prior to the USD bounce-back, EURUSD broke topside 1.2100, reaching a recent high of 1.2147. The single currency ended the week at 1.2017. JPY was the weakest of the  G10 vs USD this week. It ranged 107.65-109.33. CAD performed the best vs USD. USDCAD ranged 1.2488-1.2268 – with the low on Friday. 

Since it is the start of May, we take a look at USD May seasonality from our proprietary FX factor model (table below). In May, USD is weaker on average vs. G10 currencies. It is especially weak vs. CHF.  It is weak, but less so vs. EUR, NOK and SEK. USD is slightly stronger vs. AUD, CAD, and GBP. USD performs better vs. EM FX in May – it strengthens on average.  It is especially strong vs. BRL, CLP, COP,  MXN, and TRY. USD is weaker vs. Eastern Europe FX: CZK, HUF,PLN, and RUB. 



Coronavirus Update

We continue to highlight the EU improving vaccination theme.  For the first time ever, the 7 day average daily new Covid vaccine doses administered in EU has caught up to the US (chart). Here the European Commission notes that vaccination continues to progress steadily. As of 29 April, 22% of the EU population has received at least one vaccine dose and 137.4 million vaccine doses have been administered. Vaccine doses administered in the EU on Wednesday hit a record-high of 3.7 million doses (836 doses per 100,000 people), driven by record high vaccine administrations in Germany of 1.1 million.  Founder Jens Nordvig posted a chart of the much improved trend in Germany’s vaccinations – see here. He noted that for Germany, administering vaccines to “well above 1% of the population a day is fast. Things will look very different in 1-2 months in Europe.”
Turning to the US, 237 million vaccine doses have been administered. As of April 29, 30% of the US population has been fully vaccinated and 43.3% of the total population has had at least one dose. Looking at our heatmap of US states week-on-week growth in new Covid cases (see here), Jens points out, “It is harder to find anything bad…Michigan is now on a strong downtrend. NY and NJ have been  looking good for weeks, Washington, Oregon, and Colorado, which are the remaining places with positive growth seem to have the growth rates moderating towards zero. Next week could be when all states look better.”
Chart: Catch-Up. The 7 day average daily new Covid vaccine doses administered in the EU and US. 

Exante Data Happenings & Media

Founder Jens Nordvig was referenced in this Bloomberg article: The Two Big Themes In The Crypto Market Right Now by Joe Weisenthal. Here is the market “joke” that Jens referred to – the most interesting thing in macro right now

This week, we are initiating tracking of flows related to bunds on our data and analytics platform and will be adding the Buba balance sheet data in coming days.

Senior Advisor Amelia Bourdeau appeared on Market Think Tank talking about Europe re-opening. Here is a clip.


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