Market Update March 12, 2021
Wall Street closed little mixed with the Nasdaq declining but the Dow Jones and S&P notching new records, as fiscal stimulus and reopening prospects nudged sentiment. On the policy side, President Joe Biden announced Thursday evening in his first primetime address that he would direct states to make all adults eligible for a vaccine by May 1, and also set a goal for Americans to be able to gather in person with their friends and loved ones in small groups to celebrate the Fourth of July. On the macro side, the 10-year Treasury yield increased to a more than a year high of 1.628% (vs. 0.92% at the beginning of the year), as inflation expectations continue to climb. The Dow Jones added 292 points or 0.9% to 32,778. The S&P 500 edged up 4 points or 0.1% to 3943. In contrast, the Nasdaq shed 79 points or 0.6% to 13,320. During the week, the Dow Jones surged 3.7%, and the S&P 500 and Nasdaq climbed 2%.
US Market Overview - At weeks end, every major US Market Index was trading above both their 20 and 50 day moving averages, with the exceptions of the NASDAQ Composite (COMPQ), Gold (GLD), and the VIX Volatility Index. The Tech Heavy NASDAQ has been pulling back due to a rise in interest rates resulting in rotation out of growth stocks and into value stocks. Gold has been declining due to the recent relative strength of the US Dollar and rising interest rates.
The yield on the benchmark 10-Year Treasury note rose to 1.63% on Friday, a fresh high since February of 2020, amid prospects of a strong economic recovery and renewed inflation concerns. President Biden signed the $1.9 trillion stimulus bill into law on Thursday and Treasury Secretary Yellen said Americans could start receiving payments during the weekend. Meanwhile, fresh PPI figures pointed to tame inflation, in line with the CPI report from the Labor Department released early in the week which showed the core inflation came in weaker than expected and hit its lowest level in eight months.
The dollar index jumped to 91.8 on Friday as Treasury yields soared again to levels not seen in over a year amid prospects of a fast economic recovery. President Biden signed the $1.9 trillion stimulus bill into law on Thursday and Treasury Secretary Yellen said Americans could start receiving payments during the weekend while the recent claims report showed initial claims were the lowest in 4 months. The greenback has gained more than 2% so far this year as upbeat economic data and massive stimulus bill prompted fears of rising inflation and led to a bond-selloff.
Producer prices for final demand in the US rose 0.5 percent from a month earlier in February 2021, slowing from a 1.3 percent increase in January, which was the largest advance since the series began in December 2009. Goods prices climbed 1.4 percent, boosted by a 6.0 percent jump in energy prices and a 1.3 percent gain in food cost. Meanwhile, services prices were almost unchanged. The core index which excludes foods and energy was 0.2 percent higher in February, also matching expectations of 0.2 percent. Year-on-year, producer prices went up 2.8 percent, the biggest increase since October 2018, and the core index increased 2.5 percent.
WTI oil prices declined 0.6% to $65.63 per barrel and Brent prices fell 0.6% to $69.23 per barrel on Friday, as reopening enthusiasm continues to support demand. On Thursday, OPEC said a recovery in oil demand will be focused on the second half of the year. OPEC lowered its crude demand forecast for Q1 by 180,000 bpd and Q2 by 310,000 bpd but said that global demand recovery would occur in H2 2021 and raised its estimates for Q3 by 400,000 bpd and Q4 by 970,000 bpd. On the policy side, President Joe Biden announced in his first primetime address a goal for Americans to be able to gather in person with their friends and loved ones in small groups to celebrate the Fourth of July. During the week, WTI prices declined 0.7%.
Spot gold dropped 0.7% to trade below $1,710 per ounce on Friday, near ten-month low of $1,676 hit last week, as rising US bond yields and a stronger dollar eroded the metal's appeal. At the same time, hopes of a global economic recovery have been supported by the US $1.9 trillion stimulus bill and the rollout of COVID-19 vaccines. Still, gold was on track for a weekly gain of 0.4%, the biggest jump since the week ended on February 12th.
Silver plunged below $26.0 an ounce on Friday, amid a recovery in US bond yields to levels not seen in 13 months and a stronger dollar. At the same time, investors hoped for a strong economic recovery as US President Biden signed a historic $1.9 trillion COVID-19 relief package into law and as COVID-19 vaccine rollouts gained steam around the globe.
The University of Michigan's consumer sentiment for the US jumped to 83 in March of 2021 from 76.8 in February, beating market forecasts of 78.5, preliminary estimates showed. It is the highest reading since March of 2020, due to the growing number of vaccinations as well as the widely anticipated passage of Biden's relief measures. Both current conditions (91.5 vs 86.2) and expectations (77.5 vs 70.7) improved. Also, inflation expectations for the year ahead slowed (3.1 percent vs 3.3 percent) while the 5-year outlook was flat at 2.7 percent. Overall, the data indicate strong growth in consumer spending during the year ahead, with the largest percentage gains for services, including travel and restaurants, and the smallest increases for vehicles and homes.
The DAX 30 lost 0.5% from yesterday's all-time high to close at 14,502 on Friday, with the tech sector and automakers among the worst performers, amid renewed concerns about rising bond yields. At the same time, surging coronavirus infections in Germany worried investors, after the president of the country's Robert Koch Institute for infectious diseases (RKI) warned that a third wave of coronavirus infections had begun. On the corporate front, German carmaker Daimler declined 1.9% after French rival Renault sold its stake in the company at a discount; while BMW was down 1.3% after saying its operating profit for 2020 fell due to the COVID-19 pandemic. For the week, the DAX 30 gained 4.2% on hopes of a solid economic recovery in 2021.
The FTSE 100 cut early losses to close up 0.4% at 6,761 on Friday, its highest level since January 14th, helped by a 6.9% jump in shares of British luxury group Burberry after the company said it had seen a strong rebound in sales since December. Meanwhile, investors digested mixed economic data showing the UK monthly GDP contracted less than forecast in January, while exports and imports plunged at record rates following the end of EU exit transition period. Also, the Financial Times reported Japanese investors bought UK government bonds at the quickest pace on record at the start of 2021 amid lower risk from Brexit and negative rates. For the week, the FTSE 100 gained 2% on hopes of a strong economic recovery in 2021.
The CAC 40 closed slightly up at 6,047 on Friday and advanced 4.5% in the last week to its highest level since February 2020, boosted by hopes of a strong economic rebound from the coronavirus crisis as the vaccination rollout gathers pace and the economies start to reopen. Investors cheered the $1.9 trillion covid rescue plan in the US and inflation concerns eased on a tepid US consumer prices data for February. Still, concerns over rising bond yields and stock valuation capped gains.
The Nikkei 225 gained 506.19 points or 1.73% to 29717.83 on Friday, adding 1.75% for the week while rising for the 4th straight session on optimism of a strong economic recovery for the US after data showed that weekly jobless claims hit a 4-month low. Risk sentiment was further boosted as US President Joe Biden signed the $1.9 trillion coronavirus relief package into law. Meantime, local 10-year yields surged to 0.119% while the US 10-year rate lifted near 13-month highs to 1.575%. Among individual stocks, Rakuten Inc, a mobile operator, climbed 8.64% following news that it will form a capital alliance with Japan Post Holdings. SoftBank Group surged 3.35% after South Korean e-commerce Coupang, in which the Japanese firm holds a 35.1% stake, was valued at around $109 billion in its debut on Thursday.
The Shanghai Composite added 16.25 points or 0.47% to 3453.08 on Friday, closing 2% lower for the week amid concerns of tightening policy, while Chinese officials warned about financial risks from the passage of US President Joe Biden’s $US1.9T stimulus package. However the IMF said Thursday that the massive stimulus in the US will boost the country's economic growth and help to support a global recovery from the COVID-19 shocks. Sentiment was also boosted by reports that President Joe Biden had told US states to ramp up vaccinations to create a greater sense of normalcy in the country by the July 4th Independence Day. In local news, China wrapped up its “two sessions” political gathering on Thursday with Premier Li Keqiang defending its super-low growth target for 2021, saying the economy has room for even faster expansion and leeway to tackle considerable uncertainty. Meantime, the Hang Seng Index plunged 621.59 points or 2.12% to 28762.16 and falling over 2% for the week.
Brazil's Ibovespa fell more than 1% to around 113,758 on Friday, after posting sharp gains in the previous session, as global investors digest rising Treasury yields and the signing of the massive US stimulus relief package. On Thursday, Brazil’s lower house of Congress approved the basic text of the so-called Emergency PEC, clearing the way for the revival of federal cash transfer program to help millions of poor families whose incomes have been hit by the COVID-19 pandemic. The bill, already approved by the Senate, allows for a maximum spending of 44 billion reais to be paid to low-income Brazilians over the next four months, with recipients expected to get an average of 250 reais per month. On the data front, retail sales fell for the third straight month in January, in line with market expectations, largely due to the expiration on December 31 of emergency government cash transfers.
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