The Federal Reserve starts to get nervous about high asset prices and leverage, nonfarm payrolls are expected to hit nearly 1 million in April, and st
The Federal Reserve starts to get nervous about high asset prices and leverage, nonfarm payrolls are expected to hit nearly 1 million in April, and strong Chinese trade data lift copper and iron ore to new records. Plus Angela Merkel pushes back against an IP waiver for vaccines – and Energy Transfer (NYSE:ET) reveals just how much it made from the big freeze in Texas and the rest of the south in February. Here’s what you need to know in financial markets on Friday. May 7th.
1. Fed warns about asset prices, leverage
Sky-high asset prices are posing increasing threats to the financial system, the Federal Reserve warned in its half-yearly Financial Stability Report, published on Thursday, in the first clear acknowledgement of what many see as a side-effect of its massive monetary stimulus over the last year.
“Asset prices may be vulnerable to significant declines should risk appetite fall,” Governor Lael Brainard, one of the most influential members of the Fed’s board, said in the report. She highlighted the issue of hidden leverage among non-banks, only weeks after the family office of former fund manager Bill Hwang blew up, causing its lenders billions of dollars of losses.
There’s plenty of leverage in the system that isn’t at all hidden: gross margin debt as recorded by FINRA rose to a record $822 billion in March, up 72% from a year earlier and up 5.6% in the last three months alone.
2. Nonfarm payrolls expected to hit nearly 1 million
The U.S. economy is expected to have added nearly 1 million jobs in the month through mid-April, up from 916,000 in March.
The quickening pace of the labor market recovery has already been evident this week in ADP’s estimate of 742,000 private-sector jobs being gained in the month, while initial jobless claims fell below 500,000 for the first time since the start of the pandemic, according to data released on Thursday.
Despite increasingly rapid gains, the numbers appear unlikely to change the Fed’s view for monetary policy, given that there are still some 8 million jobs to be recovered before employment reaches its pre-pandemic level. According to Bloomberg data, the ratio of employment to total population in the U.S. is still below its low point during the 2009 crisis.
3. Stocks set to open higher. Energy Transfer gets windfall from winter storms
U.S. stocks are poised to end the week on a positive note, on course for a weekly gain of over 1% despite some wobbles as a result of earnings season.
By 6:30 AM ET (1030 GMT), Dow Jones futures were up 67 points, or 0.2%, while S&P 500 futures and NASDAQ Futures were up in parallel.
Stocks likely to be in focus later include vaccine makers, after German Chancellor Angela Merkel pushed back against loosening intellectual property protection for Covid-19 drugs. The topic is set to be discussed at an EU leaders’ summit later Friday.
Also in focus will be Roku (NASDAQ:ROKU), which appeared to stop the rot in its share price with strong quarterly results after the bell, and pipeline operator Energy Transfer (NYSE:ET), whose earnings settled the debate about who really won from the great freeze in Texas in February. Cigna (NYSE:CI) results also came out early, some 12% ahead of expectations.
4. Report hits China stocks…
China’s stock markets ended the week heading in the other direction. After a Bloomberg report suggesting that Beijing is looking at further restrictions on companies that list overseas. That puts a question mark over their access to the U.S. pool of capital, which would undercut many companies’ valuations.
The main Chinese indices all fell by over 1% in response to the news, which came at the end of a week of negative newsflow regarding China’s economic and financial relationships with the rest of the world. The Biden administration said on Thursday that it won’t reverse Trump-era rules restricting U.S. investment in a handful of Chinese companies.
There was better news from Chinese data, which showed massive year-on-year increases in both imports and exports, albeit from a very low base.
5. …But China’s trade data lifts commodities
The Chinese trade data underpinned further rises in industrial commodities, with Iron ore Futures trading over $200 a ton for the first time and copper futures breaking clearly above $10,000. Zinc, Aluminum and Nickel Futures all also gained 1% in London trading overnight.
Oil prices lagged, however, again hit by negative newsflow from India, which again posted a new record high of new cases of Covid-19 on Friday at nearly 413,000, with 3,980 deaths also reported.
By 6:30 AM ET, U.S. crude futures were down 0.1% at $64.63 a barrel, while Brent futures were down 0.1% at $68.02.
The rally in commodities will make the CFTC’s weekly report on commitments of traders interesting later on, while Baker Hughes’ oil rig count is also due.