A perfect week

Chief Investment Officer's team
18 April 2021
A perfect week
Last week saw upbeat economic data, positive corporate earnings and falling interest rates


  • Last week saw upbeat economic data, positive corporate earnings and falling interest rates
  • All asset classes delivered positive returns, with a confirmed leadership from the US
  • Our pro-cyclical positioning looks appropriate so far and we didn’t change it in April

It was an eventful week on many fronts, with stocks, bonds and commodities registering positive returns, China on a slowdown path, the US economy turbocharged, yet long-dated Treasury yields falling, and both Fed and ECB officials making hints to the future unwinding of asset purchase programs. Developed market stocks gained 1.5% and their emerging peers were not far behind. The yield on the US 10-year note lost 8bps, now below 1.6%. Gold broke above $1,750, Brent crude rose by 6% and the US dollar fell back to mid-March levels.

This was indeed a perfect week for investors. On the economic front, data confirmed that the US didn’t wait for full vaccination to rebound. Retail sales, industrial production and sentiment indices were all better than forecast, while initial jobless claims were lower. As Consumer Price Index came out at its largest increase in over 2 years, at +2.6% Year-on-year, the surprise came from the steadiness, and even, the decline, in interest rates. It may be that the communication of Central Banks has been effective: by opening the discussion on the future exit strategies, major monetary authorities may have convinced that their support will not be reversed in the shorter-term. At the same time, excellent quarterly results from US banks, especially the most exposed to market activity, provided comfort that the current sky-high equity multiples will be compressed by a sharp rise in the denominator

Corporate results will be the focus of the week ahead, and assuming that interest rates remain quiet, we may enjoy a constructive trend, before the question of central banks starting to reduce their asset purchases takes centre stage in the summer. We haven’t changed our positioning in April. Stay safe.

Cross-asset Update

Some complacency seems to be setting in in the Treasury market in relation to long-dated Treasury yields topping out. If on the one hand the high-volatility phase of their rise should be over and leave room to less market-rattling swings, on the other it does not square up that amidst the Mother of All Public Interventions in the United States the US yield curve badly lags market-implied inflation. After all, both indicators currently express a market angle on the strength of the business cycle in America and they should move somewhat more in tandem.

The so-called breakeven inflation, the difference between the yield on the 10-year Treasury note and the one on Treasury-Inflation-Protected Securities for the same tenor, has been rising steadily since its March-2020 pandemic low to reach its current 2.37%, almost the top-end of the historical range. Investors have been discounting a constructive, post-recession unfolding of the business cycle aided by the strong support of both the Fed and Congress. The signal is that future inflation must normalize, especially as the Fed has embraced a new regime called Average Inflation Targeting, whereby Fed officials want to materially see inflation rise above target before tightening policy. The yield curve, measured for instance as the difference between the yield on the 10-year and the 3-year note, has been steepening steadily as well, anticipating strong improvements in the economy. But given the extraordinary nature of the public interventions and strong real growth into year-end forecast at levels not seen since the ‘80s, one would expect the yield curve to steepen further to be more aligned with macro projections and what indicated by breakeven inflation. Otherwise, markets should record a huge failure in the possibility of persistently raising price pressures by pushing back down break-even inflation. Under this scenario macro projections would also be likely to somewhat disappoint.

It seems more plausible to us that markets are just taking a breather, with long-dated yields range-bound since March, ready to reassess as fresh inflation and growth forecasts are released. Also, Fed officials mentioned that towards summertime it would be appropriate to initiate talk about when to start the winding down of the program of asset purchases, the Fed Treasury-buying program currently exerting downward pressure on market rates. If economic expansion rates remain sustained, as they should since the Fed is driving a high-pressure economy, and the discussion on QE tapering gains traction, as it should, with the major investment houses expecting tapering to be started early in 2022, then most ingredients would be there for yields to start rising again.

Under this scenario, duration risks would be re-emerging later this year, with renewed downward pressure on gold and one more bounce in the US dollar.

Fixed Income Update

Within days of our last weekly publication, where we outlined our firm belief that most of the yield uptick is behind us, the US Treasuries caught everyone by surprise. Analysts have been scampering to explain the massive rally in the long-end of the curve on Thursday when the 10-year yields came down by seven bps to trade at 1.58% despite positive surprises in a multitude of economic data. According to a Goldman Sachs analysis, these kinds of price actions are rare, and a decline of more than 20 bps in the month following positive data surprises has never happened

A possible explanation for the rally could be that there was a lot of short-covering as the JP Morgan Treasury Client Survey had surged to its shortest level since early February and is on the shorter end of the range we’ve seen over the past two years. Adding fuel to the fire was Chairman Powell’s reconfirmation that conditions are not yet ripe for a rate hike before the end of 2022. This has resulted in rate hike expectations being pushed back by a quarter to April 2023. So we think the rally last week was more technical than fundamental and could be intermittent during the consolidation phase than a signal that treasuries have topped out. We do not believe the upward pressure on the yield is over yet, and this is not the time to change our views.

The sub-asset classes turned green, driven by the surge in treasuries. Spreads of different sub-sectors traded sideways. In a reversal of fortunes, the worst-performing asset class Emerging Market Sovereigns topped the weekly chart with a +1.1% return last week. Other long-duration asset classes such as GCC Debt and Investment Grade Credit also were in the top half of the chart due to the same reasons. But we continue to ask the investors to exercise caution when going into the long-duration bonds as this pause may be short-lived.

The only negative spot was Asian High Yield that returned -0.2% due to the adverse reaction to the Huarong saga. The contagion effect has been lower than what headlines had screamed. In fact, Chinese authorities directed local banks to continue to support the distressed AMC, and the regulator insisted that the company’s operations are normal and the firm has ample liquidity. The bound complex of the firm rallied sharply on Friday, with 5-year CDS falling by a whooping 500 bps to 956 bps as of Friday. This gives hope that the Govt is working to contain the fallout from the event, and we maintain our positive stance on the Asian HY subsector

GCC Debt outperformed the broader Emerging Market debt driven by a solid performance from the long-end of the sovereign curves. DIB sold its long-awaited AT1 perpetual, which could be used to refinance the outstanding Noor AT1 Sukuk that has a call date in June 2021. The new issue was oversubscribed by 5x and is an official record as the lowest ever coupon for a subordinated GCC bank debt.

Equity Update

Equities continue to make new highs as better than expected Q1 earnings releases, indicate the economic and corporate recovery is well in place. This is acting as a tailwind for stocks and easing valuation pressure. Also, 2021 consensus earnings growth estimates have been moved up by 6% for the US, taking EPS growth to 27% and for Eurozone by 3% taking EPS growth to 38%. Earnings have a 6 to 7 X beta to economic growth and global real GDP is seen to be moving from -3.6% in 2020 to +6.5%, this year. The world has seen the sharpest economic "V" in history—a deep recession and rapid recovery within just five quarters. Longer-term bond yields rising have caused concerns but are reflective of the global economy’s faster-than-expected recovery from the COVID-19 crisis, though worries on inflation and their impact on input costs remain. However, recent stabilization of the 10-year US Treasury yield to 1.58% has led to a rebound in growth stocks, with technology the best performing sector in April so far. The equity rally is broad based in terms of geographies and sectors with both EM and DM stocks gaining c.1.5% last week. Optimism remains elevated— improving profit margins, the Vix at low levels, improving PMI’s and record inflows with $ 334 bn into equities in Q1.

Our overweight on US equities is supported with US GDP growth estimated at 6 to 8% this year—the fastest pace since 1983 and reflected in the almost 12% ytd S&P 500 gains with the Nasdaq close behind. Increased optimism, with a strong start to Q1 earnings season. The banking sector earnings surprised positively, though a large part of earnings beats was a release of loan loss reserves. Financials remain our top call in global sector positioning and we see more upside driven by the economic recovery. Market sentiment remains positive for continued US equity performance as better-than-expected housing construction activity added to other strong economic data, despite the April University of Michigan Consumer Sentiment Index below forecasts and with near-term inflation expectations rising. Favorable earnings from Daimler and LVMH indicate an auto and luxury demand rebound in Europe, which ended the week with widespread gains. We have a relative overweight call on the UK, as energy and commodity prices remain supportive.

Our region sees continues outperformance from the UAE, with Dubai real estate rallying last week. We are also seeing an upswing in the logistics sector with Air Arabia and Aramex recent share price rise, indicative of resuming economic activity with the robust vaccination rollout. The UAE is seeing continued end user house purchases and longer-term vacationing from Asian and European tourists, as the strong social distancing measures and COVID monitoring in place, give comfort.

Markets in Asia rose towards the end of the week, with China leading the way following a sharp acceleration in Q1 GDP. As the regulatory overhang is now dissipating to some extent, with the record fine on Alibaba providing a closure hopefully, we would add to Asia equities. Consensus expectations are for 38% EPS growth for EM in 2021, though upward revisions by 1.5%, have lagged the developed markets.

Written by:


This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), licensed and regulated by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“SCA”) and subject to regulation, supervision and control of the Central Bank and SCA, having its head office at Baniyas Road, Deira, PO Box 777, Dubai, United Arab Emirates. This document may be distributed and/or made available by the Bank and its affiliates and subsidiaries, including Emirates NBD Capital KSA CJSC (“ENBD Capital”) (through its website, its branches or through any other modes, whether electronically or otherwise).

Emirates NBD and its affiliates, subsidiaries and group entities, including its shareholders, directors, officers, employees and agents are collectively referred to Emirates NBD Group.

Any person (hereinafter referred to as “you”, “your”) who has received this document or have access to this document shall acknowledge and agree to the following terms.


Data/information provided in this document are intended solely for information or illustrative purposes and are not designed to initiate or conclude any transaction.

This publication may include data/information taken from stock exchanges or other third-party sources from around the world, which Emirates NBD reasonably believes to be reliable, fair and not misleading, but which have not been independently verified. The provision of certain data/information in this publication may be subject to the terms and conditions of other agreements to which Emirates NBD is a party. Opinions, estimates and expressions of judgment are those of the writer and are subject to change without notice. Emirates NBD or any member of Emirates NBD Group makes no representation or warranty and accepts no responsibility or liability for the sequence, accuracy, completeness or timeliness of the information or opinions contained in this publication. Nothing contained in this publication shall be construed as an assurance by Emirates NBD that you may rely upon or act on any information or data provided herein, without further independent verification of the same by you.

The contents of this document are prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors, including those relevant to the determination of whether a particular investment activity is advisable. Emirates NBD does not undertake any obligation to issue any further publications or update the contents of this document. Emirates NBD may also, at its sole discretion, update or change the contents herein without notice. Emirates NBD or any member of Emirates NBD Group does not accepts no responsibility whatsoever for any loss or damage caused by any act or omission by you as a result of the information contained in this publication (including by negligence).

References to any financial instrument or investment product in this document are not intended to imply that an actual trading market exists for such instrument or product. Certain investment products mentioned in this document may not be eligible for sale in some jurisdictions, and they maynot be suitable for all types of investors. The information and opinions contained in this publication is provided for informational purposes only and have not been prepared with any regard to the objectives, financial situation and particular needs of any specific person, wherever situated. If you wish to rely on or use the information contained in this publication, you should carefully consider whether any investment views and investment products mentioned herein are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You should also independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professional advisers or experts.


This publication may be provided to you upon request (and not for distribution to the general public), on a confidential basis for informational purposes only, and is not intended for trading purposes or to be passed on or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal.


None of the content in this publication constitutes a solicitation, offer, recommendation or opinion by Emirates NBD to buy, sell or trade in any security or to avail of any service in any jurisdiction. This document is not intended to serve as authoritative legal, tax, accounting, or investment advice regarding any security or investment, including the profitability or suitability thereof and further does not provide any fiduciary or financial advice. This document should also not be used in substitution for the exercise of the prospective investor’s judgment.

Third Party

This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is the responsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publication may not be conveyed to or used by a third party without the express consent of Emirates NBD or its affiliates, subsidiaries or group entities distributing this document. You should not use the data in this publication in any way to improve the quality of any data sold or contributed by you to any third party.


Notwithstanding anything to the contrary set forth herein, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from this publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity or strategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before entering into any transaction, prospective investors should: (i) ensure that they fully understand the potential risks and rewards of that transaction; (ii) determine independently whether that transaction is appropriate given an investor’s investment objectives, experience, financial and operational resources, and other relevant circumstances; (iii) understand that any rates of tax and zakat or any relief in relation thereto, as may be referred to in this publication may be subject to change over time; (iv) consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment; (v) understand the nature of the investment and the related contract (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk; and (vi) understand any regulatory requirements and restrictions applicable to the prospective investor

Forward Looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. The information contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.


Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records. The use of this publication is at the sole risk of the investor and this publication, and anything contained herein, is provided "as is" and "as available." Emirates NBD makes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of investment products mentioned in this document may neither be capital protected nor guaranteed and the value of the investment product and the income derived therefrom can fall as well as rise and an investormay lose the principal amount invested. Investment products are subject to several risks factors, including without limitation, market risk, high volatility, credit and default risk, illiquidity, currency risk and interest rate risk. It should be noted that the value, price or income of securities denominated in a foreign currency may be adversely affected by changes in the currency rates. It may be difficult for the investor to sell or realise the security and to obtain reliable information about its value or the extent of the risks to which it is exposed. Furthermore, the investor will not have the right to cancel a subscription for securities once such subscription has been made. Prospective investors are hereby informed that the applicable regulations in certain jurisdictions may place certain restrictions on secondary market activities with respect to securities.

Before making an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment. In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and such others. All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties.

Except as specifically permitted in writing, you should not copy or make any use of the content of this publication or any portion thereof or publish, circulate, reproduce, distribute or offer this publication for sale in whole or in part to any other person over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet or construct a database of any kind. Except as specifically permitted in writing, you shall not use the intellectual property rights connected with this publication, or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose. This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. By accepting this publication, you agree not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose of any information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, you should not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you, except as otherwise provided with Emirates NBD’s prior written consent. You shall have no ownership rights in and to any of such items.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the London branch of Emirates NBD Bank (P.J.S.C) which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by Emirates NBD Bank (P.J.S.C) outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returns or income set out within this publication.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singapore branch of Emirates NBD Bank (P.J.S.C) which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank (P.J.S.C) outside Singapore will not be regulated by the MAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns or income set out within this publication. Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate. For contact information, please visit www.emiratesnbd.com.


Emirates NBD Capital KSA CJSC (“ENBD Capital”), whose registered office is at P.O. Box 341777, Riyadh 11333, Kingdom of Saudi Arabia, is a Saudi closed joint stock company licensed by the Saudi Arabian Capital Market Authority (“CMA”) under License number 37-07086 dated 29/08/2007G (corresponding to 16/08/1428H) to deliver a full range of quality investment products and related support services to individuals and institutions in the Kingdom of Saudi Arabia. ENBD Capital is subject to Capital Market Law, and Implementing Regulations in the Kingdom of Saudi Arabia

ENBD Capital’s contact details are T +966 (11) 299 3900 and F +966 (11) 299 3955.

This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Funds Regulations issued by the Capital Market Authority.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective subscribers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities offered. If you do not understand the contents of this document, you should consult an authorised financial adviser.