Market Update March 9, 2021
Wall Street closed in the green on Tuesday led by tech following a sharp sell-off in the previous session and the Nasdaq booked its best day in four months, as a new stimulus package and declining bond yields nudged sentiment. On the policy side, House Democrats aim to pass the $1.9 trillion stimulus bill that includes extensions for jobless benefits and stimulus checks on Wednesday so President Joe Biden can sign it on Wednesday. On the corporate side, shares of Tesla surged 19% and had the best day since February 2020 as Bitcoin prices continue to soar. The Dow Jones edged up 31 points or 0.1% to 31,833. The S&P 500 gained 54 points or 1.4% to 3876. The Nasdaq surged 465 points or 3.7% to 13,074.
The yield on the benchmark US 10-year Treasury note retreated to 1.53% on Tuesday, the lowest in a week, after touching 1.61% in the previous session. Still, Treasury yields remain close to levels not seen in a year amid concerns over hot inflation arising from strong growth and fiscal support. The House is expected to pass the $1.9 trillion aid bill on Wednesday after the Senate passed it on Saturday, paving the way for more direct payments and unemployment benefits to Americans. Treasury Secretary Yellen said she doesn't see the new aid package causing an inflationary problem although it would provide enough resources to fuel a “very strong” US economic recovery. Also, Fed Chair Powell has been reiterating the Fed will not tight monetary policy anytime soon and that inflation could temporarily exceed 2%. However, such comments have been failing in calming investors' concerns over runaway inflation.
European shares extended yesterday's rally on Tuesday, with Frankfurt's DAX 30 closing up 0.6% at a new record high of 14,459 helped by a rally in tech shares. Sentiment continued to be supported by the prospect for a strong economic recovery, while investors welcomed a decline in global bond yields. Elsewhere, the US House of Representatives is set to approve this week the Senate version of President Joe Biden's $1.9 trillion coronavirus aid package.
The CAC 40 added 22 points, or 0.4% to 5,925 on Tuesday, its highest close since February 24th 2020 and extending a 2.1% gain in the previous session, on optimism over strong growth momentum this year and as the bond market selloff eased. Traders await the US House to pass the $1.9 trillion stimulus, putting Biden on track to sign it this week.
The FTSE 100 held onto early gains to close at 6,740 on Tuesday, its highest level since February 16th, supported by optimism about a global economic recovery and massive fiscal stimulus to be delivered in the US. At the same time, a pull back in global bond yields also supported sentiment. On the corporate front, shares of British investment manager M&G plc rose 4.7% after the company reported strong 2020 results.
The S&P/TSX Composite Index rose more than 0.5% to trade at all-time highs on Tuesday, extending gains for the third session, buoyed by rises in materials stocks as gold miners tracked gains in bullion prices. Meantime, traders await the US House to pass Biden’s $1.9 trillion coronavirus aid bill and the bond sell-off eased.
The Nikkei 225 added 284.69 points or 0.99% to 29027.94 on Tuesday, following declines of 0.41% in the previous session as investors rotated from technology stocks to consumer goods companies expected to benefit from an economic recovery from the pandemic. Local 10-year yields also remained near 28-month highs, lifting to 0.128% while the US 10-year rate eased from 13-month highs to 1.561%. In the US, the House will give final passage to the US$1.9 trillion COVID-19 relief bill later this week, probably on Wednesday; while the Biden administration said it will sign the measure before jobless benefits for Americans run out on March 14th. On the data front, Japan's Q4 GDP growth was revised lower to 2.8% qoq from a preliminary figure of a 3% expansion as companies scaled back spending.
The Shanghai Composite fell 62.12 points or 1.82% to 3359.29 on Tuesday, declining for the 4th consecutive session and trading at 11-week lows as investors weighed lingering concerns about equity valuations amid surging bond yields in the US against prospects of a global economic recovery. US 10-year rate eased from 13-month highs to 1.561% amid recent signs of economic rebound amid concerns policymakers will dial back extraordinary monetary stimulus. However, Treasury Secretary Janet Yellen said the US$1.9 trillion Covid-19 relief package would provide resources to “fuel a very strong economic recovery” and help the US return to full employment. Meantime, the Hang Seng Index closed 71.09 points or 0.25% higher to 28611.92, but closing near 5-week lows.
The KOSPI fell 14.83 points or 0.49% to 2981.28 on Tuesday, declining for the 4th consecutive session and trading at 5-week lows as global recovery hopes drove bond yields higher. Local 10-year yields eased slightly from 2-year highs to 2.021% while US-10 year rates eased from 13-month highs to 1.568%. Vice Finance Minister Kim Yong-beom noted during a macroeconomics meeting that the recent yield surge, if prolonged, could lead to a decline in asset prices, adding that the government will closely monitor the matter and come up with countermeasures. On the coronavirus front, The KDCA added 446 more COVID-19 cases as continued cluster infections and increased outdoor activity are feared to ignite another surge in virus infections. On the data front, South Korea’s current account surplus widened for the 9th straight month in January as exports increased by 9% on-year, while imports added 0.5%.
The dollar index lost some ground to 92 on Tuesday, falling back from 3-1/2-month highs of 92.3 early in the session, as Treasury yields retreated. Still, the greenback has gained more than 2.5% so far this year as upbeat economic data and massive stimulus bill prompted fears of rising inflation and led to a bond-selloff.
The NFIB Small Business Optimism Index in the United States rose by 0.8 points from the previous month to 95.8 in February 2021, still remaining below the 98 average and pre-pandemic levels. The latest report highlighted small business owners' efforts to stabilize business among COVID-19 regulations and weather complications.
The OECD revised its 2021 global growth projection to 5.6% from 4.2% as vaccine rollout is gaining momentum and government stimulus, particularly in the US, is likely to provide a major boost to economic activity. The US economy is seen growing 6.5% in 2021, higher than 3.2% in the previous outlook while the Chinese economy is seen expanding 7.8%, slightly less than 8% earlier. The Eurozone should expand 3.9%, up from 3.6%, mostly due to upward revisions to Germany and Spain while France and Italy are likely to grow less. Elsewhere, 2021 growth figures were also revised higher for the UK (to 5.1% from 4.2%), Canada (to 4.7% from 3.5%) and Mexico (to 4.5% from 3.6%). Growth projections for 2022 were revised higher to 4% from an estimate of 3.7%, with the US economy seen growing 4% next year, China 4.9%, the UK 4.7% and Germany 3.7%.
Brent crude futures pulled back to below $68 per barrel on Tuesday, as fears of a supply disruption in Saudi Arabia recede. Meantime, traders await the US weekly oil inventory report from the American Petroleum Institute later in the day, with markets anticipating a 0.833 million barrels fall in stockpiles in the week ended March 5th. Brent crude hit a new 14-month high of $71.4 on Monday, due to the OPEC+ agreement last week to maintain the output cuts despite rising crude prices. At the same time, investors hoped for a strong recovery in fuel demand, helped by the US Senate's approval of President Biden's $1.9 trillion stimulus bill.
Gold recovered some ground and jumped 2% to $1708 an ounce on Tuesday, after touching a 9-month low of $1676 an ounce in the previous session as both the dollar and Treasury yields retreated. Still, spot gold has been under pressure and close to levels not seen since June 2020 amid prospects of a swift economic recovery fueled by further fiscal support. US Senate approved President Biden's $1.9 trillion stimulus bill on Saturday and the House is seen passing it tomorrow, paving the way for more checks and unemployment benefits to Americans.
Silver was up to $25.9 an ounce on Tuesday, the highest level in near a week, as the bond sell-off eased and the dollar index stabilized. Still, silver has been trading around levels not seen in a month as investors weigh prospects of a swift economic recovery fuelled by further fiscal stimulus.
Chicago corn futures have been trading around $5.6 a bushel, close to its highest level since July 2013 driven by strong demand for US supplies, especially from China. US corn exports have been gathering pace since last September, with February sales seen surpassing 6 million tonnes for the first time ever. About 90% of USDA’s full-year export forecast had been sold by February 25th. US corn ending stocks are also seen at 7-year lows in 2020/21. Further supporting prices have been concerns about crop shortfalls in South America, as Brazil’s corn crop is being planted late and the weather has turned dry for Argentina’s crops.
LME copper futures have been falling to trade around $4.0 a pound, down more than 6% from a near-decade high of $4.3 touched on February 24th after top consumer China set economic growth at above 6% this year, well below market expectations of more than 8% and as the central bank seeks to cool credit growth to contain debt risks. Further pressuring prices were worries that speculation drove prices away from fundamentals in February, when copper soared more than 15%, its best monthly performance since November 2016. The commodity, considered an economic barometer, has been in a massive rally from its March’s multi-year lows on the back of unprecedented measures from central banks and governments to shore up economic growth.
Prices for iron ore cargoes with a 63.5% iron content for delivery into Tianjin eased to below $175 a tonne, amid deteriorating demand outlook for the steel-making ingredient in the short term after top steel-producing city Tangshan issued a pollution warning forcing mills and coking plants to halt production. Still, prices remain close to levels not seen since October 2011 buoyed by prospects for a robust global economic recovery, which, in turn, should further fuel demand and persistent doubts about Brazilian shipments.
Shanghai steel futures have been trading below 4,800 yuan a tonne, pressured by a rise in inventories as steel mills continued to operate during the Lunar New Year holidays while demand slowed. Steel prices skyrocketed to a record high of 4,850 yuan a tonne on March 3rd after the government of the steelmaking hub of Tangshan city in Hebei province restricted mills operations to improve air quality during key national government meetings in Beijing that began March 4th. Still, the temporary closure of the seven blast furnaces in the city is expected to shank output by less than 4 million mt of capacity.
The Baltic Exchange's main sea freight index extended gains for a sixth straight session and rose 2.6% to 1,901 on Tuesday, its highest since October 8th, 2020. The capesize index, which tracks iron ore and coal cargos surged 6.8% to 1,950, its highest level since late-January; and the supramax index gained 36 points to touch a new record high of 1,969. Meanwhile, the panamax index, which measures coal or grain cargos went down 0.9% to 2,238.
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