Weekl View - Vaccine struggles
If the week prior was dominated by central banks, last week was one for purchasing manager indices (PMI). Manufacturing sentiment improved considerably, with strong PMI numbers across all regions and especially in the euro area and US. Particularly noteworthy was the upward movement of prices paid and delivery lead times. Given the shipping backup due to the blockage in the Suez Canal, the supply situation will likely deteriorate, putting short-term pressure on delivery times and temporarily pushing oil prices higher.
In markets, US 10-year bond yields came down after Federal Reserve chairman Jerome Powell struck a dovish tone in his testimony to the Senate. Bond-market volatility is elevated, having nearly doubled its level from the start of the year, which is unusual for the asset class. In fixed income, we remain short duration in portfolios. Meanwhile, equities continue to react on a near daily basis to news around vaccines as new covid cases have started to rise in many countries. India is facing an especially severe situation, with infections doubling every five days. As a result, authorities have halted vaccine exports, with serious implications on the global inoculation effort, given that India is home to the world’s largest vaccine manufacturer. In a similar move, the European Commission has decided to limit its vaccine exports (notably to the UK) to pressure pharmaceuticals companies to make delivery on the agreed doses to Europe. Tensions among European leaders are high.
In other news, pressure on the large tech players persists, with Chinese authorities fining Tencent and the planned merger of its game-streaming companies was put on hold. In the US, political pressure is also intensifying with Twitter, Facebook and Google leaders coming under criticism in Congress for failing to moderate content and allowing the mass dissemination of misinformation. Portfolio diversification remains ever critical. China’s recent retaliatory moves against Western retailers that have expressed concerns over human rights violations in Xinjiang province add a new dimension to the ongoing trade wars. Such tensions emphasise the importance of stock picking in today’s environment.