The S&P 500 index is trying to avoid a three-day losing, but this needs to be put into context. Since closing out last week in record-high territory, the S&P 500 index is only down just over one percentage point. The Russell 2000 index, on the other hand, is over 7% off record levels, but should over the next few months be the biggest beneficiary of improving economic growth, modest inflation, and pent-up demand from the American consumer. The cyclical trade has paused but is nowhere near being over.
US stocks are rising higher as some traders view this week’s weakness as good as it gets. A sustained equities pullback would be hard to argue for, given the mostly strong earnings results we’ve seen so far. Dip buying and reshuffling back into some of the favorite big-tech plays should provide underlying support if calm continues across the bond market.
Bank of Canada tapers QE
The Bank of Canada became the first major central bank to pare back asset purchases but it didn’t come without drama. Minutes before the heavily anticipated policy decision announcement, MT Newswires reported that the BOC maintains its QE purchases, noting the ongoing recovery continues to require extraordinary monetary stimulus. USD/CAD rose to just above 1.2650 before plunging below 1.2500 after the BOC pared asset purchases and delivered hawkish guidance.
The key quote from the BOC statement was “the Bank now expects slack will be absorbed and inflation will sustainably return to target some time in the second half of 2022.”
Tapering purchases from CAD4 billion down to CAD$3 billion was mostly expected, but the guidance moved forward rate hike expectations from 2023 to somewhere closer to late 2022.
Germany’s top court gave the thumbs up for the country to proceed with the ratification of the European Union’s 800 billion-euro (USD960 billion) pandemic recovery fund. The German Constitutional Court decision was viewed as the last major hurdle for the fund and received immediate support from EU President Ursula von der Leyen.
The euro continues to consolidate around the 1.20 level against the dollar as currency traders await the upcoming ECB policy decision and press conference. ECB President Lagarde will likely be more upbeat given improvements with vaccine distribution and calm in the bond market. She will try to refrain from tipping her hand over the strategy of tapering purchases tomorrow and that should allow for euro strength to resume.
Netflix shares turned negative for the year after disappointing first-quarter earnings. The pandemic wave of relentless streaming and rising competition is starting to take a toll on the streaming giant. The reopening story is dampening interests to stay at home and binge-watch shows. Netflix added 4 million subscribers in the first quarter, much lower than the forecast of 6 million. They did announce plans to buy back up to USD5 billion of common stock in 2021, but the lack of announcements of major content productions has some investors concerned about the paid memberships over the coming quarters.
Netflix is still the king of the streaming wars and is already starting to dip buyers after last night’s tumble took prices almost 20% off the record highs seen in January.
Bitcoin is paring losses after some cryptocurrency traders shrugged off the JPMorgan warning that prices could collapse on loss of momentum. A failed recapturing of the USD60,000 level could lead to a collapse of momentum signals is almost comical given the bank recently provided a long-term price target of more thanUSD146,000.
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