Market Update March 16 2021

Wall Street closed little mixed with the Nasdaq eking out a modest gain, as investors stood cautious ahead of the Fed’s policy decision and rate guidance. On Tuesday, data showed that retail sales fell more than expected, falling 3%. However, January’s figure was revised to a 7.6% advance from a preliminary 5.3% increase. The Dow Jones lost 128 points or 0.4% to 32,826 and the S&P 500 decreased 6 points or 0.2% to 3963, as both retreated from records. In contrast, the Nasdaq gained 12 points or 0.1% to 13,472.

The dollar index consolidated around 91.80 on Tuesday, with investors cautious ahead of a US Federal Reserve meeting later this week that may provide clues on whether the central bank will move away from its ultra-easy monetary policy. Market participants anticipate that the Fed will upgrade growth projections due to the successful vaccine rollout and Washington’s massive stimulus package. On top of that, the recent tumult in the bond market sparked further speculation that the US central bank may have to tweak policy to soothe concerns about higher longer-term yields. Meantime, both industrial production and retail trade data for February came in worse than expected due to deep-freezing temperatures across the US but a reversal is expected in the next month as the weather normalizes. 

Oil went down for a third consecutive session on Tuesday, with WTI crude falling as much as 2% to around $64.2 a barrel, amid rising stockpiles in the US, concerns over demand in Europe due to a slow vaccination campaign and as investors try to assess if the economic recovery is sustainable. In the US, drillers are pumping again following last month’s freeze and stockpiles rose by 35.4 million barrels in the last 2 weeks. The API report due later in the day will provide an update on US crude inventories. Still, the oil market is up more than 30% so far this year, due to supply cuts from Saudi Arabia and OPEC, signs for increased energy demand with the rollout of Covid-19 vaccines, and attacks on oil facilities in eastern Saudi Arabia.

US gasoline futures gained further ground in the third week of March, with the front-month contract surging towards the $2.2 per gallon mark for the first time since June of 2018 amid improved demand sentiment as vaccination drives gather pace. Markets were already basking in the glow of a sharp fall in US fuel stocks.

Gold prices consolidated around the $1,730 an ounce level on Tuesday, underpinned by a retreat in US Treasury yields, while investors await fresh catalysts from the Federal Reserve's policy meeting. Market participants anticipate that the Fed will upgrade growth projections due to the successful vaccine rollout and Washington’s massive stimulus package. A rosier economic outlook and recent tumult in the bond market sparked further speculation amongst investors that the Federal Reserve may have to tweak its ultra-easy monetary policy soon. 

Industrial production in the United States slumped 2.2 percent from a month earlier in February 2021, following an upwardly revised 1.1 percent growth in the previous month and missing market expectations of a 0.3 percent increase. It was the steepest contraction in industrial output since April's record 12.7 percent slump, due to the severe winter weather in the south central region of the country in mid-February. Most notably, some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month. Manufacturing output and mining production fell 3.1 percent and 5.4 percent, respectively; the utilities output increased 7.4 percent. 

The NAHB housing market index in the US fell 2 points to 82 in March of 2021 compared to forecasts of 83. It is the lowest reading in 7 months amid rising interest rates and building materials costs, especially lumber. Current sales conditions for the single-family segment fell 3 points to 87 while sales expectations in the next six months increased 3 points to 83. Also, the prospective buyers' sub-index was unchanged at 72.

Retail sales in the US shrank 3 percent month-over-month in February of 2021, following an upwardly revised 7.6 percent jump in January and much worse than market forecasts of a 0.5 percent fall. It is the biggest decline since a record drop in April of 2020 amid unusually cold weather and winter storms in Texas and some other parts of the South region. The biggest decreases were seen in sales at department stores (-8.4 percent); sporting goods, hobby, musical instruments and book stores (-7.5 percent); nonstore retailers (-5.4 percent); auto dealers (-4.3 percent); furniture (-3.8 percent); miscellaneous retailers (-3.4 percent); building material and garden equipment (-3 percent); clothing (-2.8 percent); food services and drinking places (-2.5 percent); electronics and appliances (-1.9 percent); and health and personal care (-1.3 percent). In contrast, sales at gasoline stations jumped 3.6 percent.

European shares rose on Tuesday, with Frankfurt's DAX 30 closing up 0.7% at 14,558 and other major indices gaining between 0.2% and 0.8%, amid global recovery hopes and stronger-than-expected investor morale in Germany. At the same time, investors await the outcome of the Federal Reserve policy meeting on Wednesday as they look for clues as to whether the central bank will take any measures to bring bond yields down. Elsewhere, EU leaders reaffirmed their commitment to support the bloc's economy amid the COVID-19 crisis and agreed on the need to keep a supportive budgetary stance in 2021 and in 2022. On the corporate front, German online fashion retailer Zalando and carmaker Volkswagen jumped following upbeat earnings forecasts.

The FTSE 100 advanced more than 50 points or 0.8% to close at 6,804 on Tuesday, its highest level since January 8th, amid optimism surrounding UK's economic recovery due to the relaxation of COVID-19 restrictions and the continued success of the vaccination rollout programme. Meanwhile, investor focus shifted to the Federal Reserve's policy meeting starting today with policymakers seen unveiling their views on a recent pick-up in inflation and rising bond yields. Among single stocks, shares of AstraZeneca rallied, despite several EU member states halting their rollouts of its vaccine, after the company announced an agreement with the US to supply up to half a million extra doses of its experimental antibody-based COVID-19 combination therapy.

The CAC 40 rose 20 points, or 0.3% to 6,057 on Tuesday, its highest close since February 2020 and rebounding from a 0.2% drop in the previous session, as traders shifted focus prospects for a strong rebound from the Covid after the EU regulator backed up Astra vaccine ahead EMA definitive guidance next Thursday. Many European countries including Germany and France suspended the use of the Astra jab amid concerns of blood clots. Commitment from EU leaders to help revive the bloc’s economy helped sentiment. Meantime, investors remain cautious ahead of the Fed policy meeting while monitoring moves in the bond markets. On the economic data front, updated figures showed France's consumer price rose more than previously expected in February.

The Nikkei 225 added 154.12 points or 0.52% to 29921.09 on Tuesday, extending gains of 0.17% in the previous session as investors bet on hopes for a strong economic recovery in the US, while long term bond yields fell further ahead of the US Federal Reserve meetings on Tuesday and Wednesday. Local 10-year bond yields fell to 0.099%, while US 10-year rates eased slightly from 13-month highs to 1.592%. Meantime, Bank of Japan Governor Haruhiko Kuroda said today that the central bank will begin experiments on a central bank digital currency (CBDC) in spring this year while mentioning that it has no plan to issue CBDC. Regarding the pandemic, Prime Minister Yoshihide Suga received his first dose of Pfizer’s virus vaccine today as part of preparations to his visit to the US next month. On the data front, Japan’s industrial output growth in January was revised slightly higher to 4.3% from a flash figure of 4.2%. 

The Shanghai Composite added 26.79 points or 0.78% to 3446.73 on Tuesday, following losses of 0.96% in the previous session, tracking US equities higher as they charted new records amid stabilizing long term bond yields and improving economic recovery hopes ahead of the Federal Reserve’s monetary policy statement on Wednesday. Local 10-year bond yields lifted to 3-week highs of 3.284%, while US 10-year rates eased stabilized at 13-month highs of 1.609%. On the pandemic front, there were 13 new COVID-19 cases on the mainland Monday, up from 5 a day earlier. Meantime, Beijing said Monday that it will simplify visa applications for foreign nationals who have been inoculated with a Chinese-made virus vaccine. Among individual stocks, Chinese smartphone maker Xiaomi surged 8.1% in Hong Kong after FTSE Russell said that the stocks will be added to its indexes again. Meantime, the Hang Seng Index added 176.08 points or 0.61% to 29009.84, extending gains of 0.16% yesterday.

Thank you and please stay tuned for more upcoming reports.

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Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor” newsletter should not be considered as investment advice or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, StockCharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not an RIA. The data is shown for informational purposes and should not be considered investment advice or an offer to buy or sell securities.