US stocks continue to make fresh record highs after a strong start to earnings season and solid economic data. The reopening trade is still running strong now that the US has administered over 200 million COVID vaccines. The breakdown of the correlation of better data and higher yields is also providing added fuel for stocks. If Treasury yields remain stable between 1.50% and 1.70% over the next couple of months, that should allow US equities to continue to rise higher.
Morgan Stanley posted a great quarter but that was overshadowed with a $911 million loss tied to Archegos Capital. The bank posted amazing revenue and profits but did see Goldman Sachs and JPMorgan eclipse them on equities trading. First quarter revenue came in at $15.7 billion, 65% higher from a year ago, with an adjusted EPS of $2.22 v $0.99 y/y.
US housing starts rose almost to a 15-year high, this will probably be the peak for the housing market. US homebuilding surged 19.4% in March, significantly better than the 13.5% forecast and -10.3% prior reading.
US consumer sentiment rose slightly as the stimulus check impact started to wane. The preliminary April University of Michigan sentiment reading rose from 84.9 to 86.5, a slight miss of the consensus estimate of 86.5. Inflation expectations popped higher for the 1-year from 3.1% to 3.7%, the highest level in almost a decade. The 5-10 year inflation expectations ticked lower from 2.8% to 2.7%.
Dollar weakness appears to be the trade given the pullback with Treasury yields. The euro is starting to look very attractive given the improvement with vaccine distribution and robust growth from China.
The Biden administration’s first foreign-exchange policy report held off labeling Switzerland, Vietnam, and Taiwan as currency manipulators. This is quite a different approach than the Trump administration and is expected to support a diplomatic approach with dealing with key trading partners. The Treasury Department noted that close monitoring is warranted over China’s activities with state-owned banks.
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