EU is the new Japan

Mathan Somasundaram

Deep Data Analytics

The local market started positive before profit-taking delivered a flat low turnover day. We have started the seventh week in a row without a double-digit turnover day. Banks and TLS held the market from a decent negative day. Banks had a strong positive day as WBC delivered a solid update with taxpayer-funded bad debt reduction. 

Given the negative sentiment from EU and US markets, Asian market weakness, Weak China data and the pullback in AUDUSD, it was a surprisingly flat day. Banks and Telecom lead the sectors while Tech and Energy were the most hit. All the window dressed small/micro caps fell today while retail punters were locking in profit in micro-cap space.

The Euro Area economy shrank 1.8% year-on-year in the first quarter of 2021 (i.e. chart in hyperlink), slightly less than forecasts of a 2.0% contraction and following a 4.9% slump in the previous three-month period, a preliminary estimate showed. The Euro Area economy shrank 0.6% on quarter in January-March 2021, slightly less than forecasts of a 0.7% contraction, a preliminary estimate showed. 

The bloc entered a double-dip recession in the first quarter, as COVID-19 lockdowns continued to hammer the services industry. Among the bloc's biggest economies, Germany, Italy and Spain fell back into contraction territory, while France's economy returned to growth as the government delayed the imposition of lockdown measures. Year-on-year, the GDP dropped 1.8% in the first quarter, easing from a 4.9% slump in the previous three-month period. 

Euro mess is getting worse but markets are betting on more stimulus. EU is the new Japan. Lack of reform and endless money printing seems to have no limits with weak leadership and pandemic problems. Some of the Mediterranean countries are loading up on so much debt that they are too big to fail. Some of these Eurotrash countries have gone from “global super powers” to “too big to fail”. Is the history repeating itself? Is the US sliding down the same path? Time will tell.

The personal consumption expenditure price index in the United States (i.e. chart in hyperlink) rose 0.5% month-over-month in March of 2021, accelerating from a 0.2% increase in February. Excluding food and energy, PCE prices edged up 0.4%, following a 0.1% gain. Year-on-year, the PCE price index advanced 2.3%, the most since 2018; and the core index increased 1.8%. Excluding food and energy, PCE prices edged up 0.4%, following a 0.1% gain. Year-on-year, the PCE price index advanced 2.3%, the most since 2018; and the core index increased 1.8%. 

Still not seeing inflation in the US? Get ready for the next lot of economic data from US for April. We already know growth rate is going higher. Wonder what is going to happen to inflation? Time will tell.

Comments on US market last close

US market was down on risk off mode on European growth worries and US inflation risk. US market fell in the morning and stayed there to finish the month. RUSSELL down 1.26%, NASDAQ down 0.85%, S&P  down 0.72% and DOW down 0.54%. US Techs are running into more regulation and tax rise everywhere. The US is trying to open up their economy as fast as possible while India is blowing up on the other side of the spectrum.

 Bond yields faded slightly while the USD popped higher. All commodities had pullback while Gold was the least affected. The US joins the countries restricting travel from India but the country hoping to get around that. Utilities and Property were the best sectors in the green while Energy and Tech were the hardest hit. 

A new month to bring new data points to show rising inflation and EU/EM economic mess. "Sell in May and go away" will get a run soon by brokers.

Full SUNSET STRIP report with end of day market stats are on the attached link.

(VIEW LINK)


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Mathan Somasundaram
Founder & CEO
Deep Data Analytics

Over 25 years’ experience in the finance/tech industry. Mathan has worked extensively in all parts of the finance sector (i.e. County NatWest, Citi, LIM, Southern Cross, Bell Potter, Baillieu Holst and Blue Ocean Equities). Currently Founder and...

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