US data paints very upbeat picture, expected Biden budget boosts stocks, AMC’s blockbuster week, US-China posturing, bitcoin steadies

US stocks pushed higher after a wrath of data painted a pretty outlook for the economy and on expectations the US will have the highest amount of federal spending since World War II.  The economy has a great recovery going, but it is not clicking on all cylinders.  A cooling housing market, chip shortages, and supply problem for employers, all support the Fed’s ultra-accommodative stance a little bit longer.

The reopening trade is still going strong.  Royal Caribbean rose 2% after being cleared to resume cruises on June 26^th.  Industrial and material stocks are outperforming as President Biden appears poised to propose a USD6 trillion budget.  The deficit could remain above USD1.3 trillion over the next decade as Biden invests in infrastructure spending, education, and healthcare.  Stocks still look attractive here as too much money is getting pumped into the economy and that probably won’t change until the end of summer.

Treasury yields popped higher after hotter-than-expected pricing and PCE data, but paired gains after a solid seven-year auction.  The British pound rallied against all of its major trading partners after BOE’s Vlieghe hawkish comment that a first-rate rise is likely to become appropriate only well into 2022.

US data

It was a solid NY morning as weekly jobless claims continued to improve, inventories decreased more-than-expected, and capital goods orders (nondefense excluding aircraft and parts), a proxy for capital spending, surged.  A nice round of economic data supported the argument that US growth exceptionalism story is not weakening.  The chip shortage impact on the auto sector remains a key theme that is depressing the headline durable goods headline.  The latest Experian study of auto credit market trends show demand for cars is still extremely robust.   American car demand is through the roof, it doesn’t matter if we are talking sport utility vehicles, trucks, new or used vehicles.  The pent-up demand should keep durable goods supported late in the summer as chips become more available.

The National Association of Realtors reported that the Pending Home Sales Index, a leading indicator of housing activity fell in April, suggesting the peak of the housing market was made last quarter.  Pending home sales declined 4.4%, a big miss of the expected 0.4% gain.  NAR’s chief economist Yun noted “contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes.”

Meme Stocks

The retail trader is at it again.  This time with a more concentrated effort with GameStop and AMC.  After skyrocketing earlier in the week, mild profit-taking initially dragged down GameStop and AMC, but no one wants to get in the way of retail investors that are adamantly committed to taking on short-sellers.

AMC500k and AMCSqueeze were trending on twitter yesterday and that momentum took the stock price above the end of January high that we saw during the peak of meme stock mania.

China

Discussions between the world’s two largest economies was predominantly about posturing. US Trade Rep Tai noted that the US-China phase 1 trade deal is very important, but only a part of the overall relationship with Beijing.  China Trade Minister Liu confirmed to have held candid, constructive talks with his US counterpart and agreed to continue talks.  The recent strength in the yuan should not be surprising given the importance of the early stages of these talks.

Bitcoin

Bitcoin continues to hover around the USD40,000 level as investors await the White House and Treasury response to concerns with oversight and volatility.  Cryptocurrency markets could see some big alterations soon, but the amount of new interest continues to grow and still suggest healthy prospects over the medium and long-term.

Bitcoin volatility has eased this week, but that probably won’t last entering a long weekend.  Bitcoin’s consolidation phase should continue, but if the USD37,000 level breached momentum, it could get ugly fast.

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