Weekly Market Commentary | 9 May 2021

Thought Of The Week

April U.S Employment, Tech Sell-Off, Yellen Reverses

While the weekly U.S jobless claims continue to fall to fresh pandemic low indicating some momentum on the economic rebound, the U.S jobs report released on Friday was a huge reality check. Only 266,000 jobs were added in April, well below consensus estimate of 1 million. The surprisingly weak data eased some fears about higher inflation and a potential cutback of government stimulus. Even though Fed remains committed to near-zero interest rates in the near term, a pullback in its heavy monthly bond purchases seems increasingly likely in the second half of this year in order to curb excessive risk-taking that is causing stretched valuations and vulnerabilities in the financial system.

U.S Treasury Secretary Janet Yellen also indicated that “interest rates will have to rise somewhat” and, although the statement was blindingly obvious (so that the economy does not overheat), markets were unhappy and sold off as a result. Subsequently, Yellen had to clarify that it was not an immediate recommendation and reiterated the independence of the central bank. All of that is keeping a lid on the market’s enthusiasm this week, even perhaps encouraging some profit-taking by technology investors.

“Clique-Politics” In G7 Meeting

As quoted by Sun Tzu in his ‘The Art of War’, “the enemy of my enemy is my friend” and that aptly sums the atmosphere of the two-day G7 meeting in London this week. With China’s rising power on the global stage, major G7 economies are increasingly threatened and have laid the groundwork during the meeting to “work collectively” in the face of arbitrary, coercive economic policies and practices by China with reference to its Belt and Road initiative and other economic threats. China followed to rebuke them “to stop interfering in other countries’ internal affairs”. Meanwhile, China also formally suspended economic dialogue with Australia on Thursday to show its growing frustration with the country. Though there was not much dialogue going on, the symbolism is clear and political tensions may still matter in the near term.

How Profitable Are Vaccine Makers?

In every crisis lies great opportunity, and the vaccine makers who were prepared found success. Pfizer’s first quarter revenue soared 42% to $14.58 billion with vaccine sales contributing nearly 25%. This number is likely to grow further if the vaccine could gain FDA authorization for teens by next week and for younger children by Q4. Earnings per share (EPS) for Moderna also beat analyst forecasts by a wide margin in its first ever profitable quarter though revenue missed estimates slightly.

The shining numbers, however, attracted some unwanted attention from regulators. On Wednesday, U.S announced that it will support a proposal to suspend intellectual-property protections for Covid-19 vaccines, joining an effort to increase global supply by allowing any pharmaceutical manufacturer in the world to make “copycat” vaccines without fear of infringement. The waiver was expectedly opposed by the vaccine makers as they argue that it will proliferate counterfeit vaccines and manufacturing bottlenecks were the main constraints instead. On the other hand, Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases was agnostic on a waiver but warned that the process could get bogged down in time-consuming litigation when the crisis is still far from over.

Chart Of The Week

Initial unemployment claims fell to a fresh pandemic low last week

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