Hot Takes

Copper hit another record and iron ore surged, as the commodities rally rolled on to start the new week.

The 10% jump in iron ore futures took 2021 gains to some 40%. One analyst who spoke to Bloomberg Television Monday said simply: “[The sector] is very, very hot.”

Commodity-linked shares were buoyant. Australian equities hit a record and the Stoxx 600 Basic Resources index flirted with its best levels in a decade.

This type of price action continues to feed the inflation narrative, even as developed market central banks will remain steadfast in the “transitory” characterization, at least until base effects fade and supply chain bottlenecks (hopefully) work themselves out. At that point, it’ll be easier to get a “clean” read on the situation.

Expect to hear plenty about the impact of last week’s nonfarm payrolls miss on policymakers’ reaction function. “The [jobs] data in the US will keep short-term dollar funding cheap and keep the cost of hedging dollar assets down,” SocGen’s Kit Juckes said. “Neither of those is good for the dollar though the market’s conclusion is that the data don’t tell us a great deal about the US economy, even if they reduce pressure on the FOMC to change its tune and on Chair Powell to listen to hawks.”

Colonial Pipeline said service should be mostly restored by the end of the week following a high profile hack that threatened to roil fuel markets. Joe Biden suggested the Kremlin has “some responsibility” given the hackers and/or the software they used may have been located in Russia.

“The ‘good’ news is this is the work of a criminal group who just want money,” Rabobank’s Michael Every remarked. “The bad news is it shows how vulnerable economies are to this kind of sabotage at a time when we are hardly short of state actors willing and able to perpetrate it due to heightened geopolitical tensions.”

Elsewhere, the yuan rallied to the strongest in three years (figure below) on the heels of the dollar’s worst week since December.

The generic story is straightforward — economic and monetary policy divergence herald a stronger currency, and although officials in Beijing may lean against appreciation, they’ll be loath to resort to heavy-handed intervention.

Chinese equities, meanwhile, may be at an inflection point. The CSI 300 closed below its 200-day moving average for the first time in a year.

It’s among only a handful of benchmarks in the red for 2021.

Oh, and for those wondering how earnings are going in Europe, Q1 results have seen an “unprecedented” rate of beats, according to Morgan Stanley.

60% of reporting companies notched beats of at least 5%. As in the US, though, the market isn’t rewarding last quarter’s performance. It’s all about what comes next. And nobody is very good at predicting the future.