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Inflation fears, cryptos surge, value beat growth - our top 10 stories from last week

Read the 10 stories to remember from the week which ended February 19th, 2021.  

 

Story #1: A mixed week for stocks
I
t was a mixed week for stocks, as the Dow recorded a slight gain and the S&P 500 and the NASDAQ posted modest declines. The large-cap benchmarks and Nasdaq Composite index hit record intraday highs before falling back. An increase in longer-term interest rates weighed on fast-growing technology stocks by raising the discount rate on future earnings.

Story #2: Value resurgence
In a reversal from 2020, large-cap U.S. value stocks have been outperforming their large-cap growth counterparts year to date, and they outperformed again in the latest week. A value stock benchmark rose 0.3% while a growth benchmark fell 1.7%. The increase in bond yields favored bank shares by boosting lending margins and helped value shares—heavily weighted in financials—outperforming growth stocks.

Story #3: Small-cap setback
US Small-cap stocks’ long run of outperformance versus their large-cap peers was interrupted, as the Russell 2000 Index, a small-cap benchmark, fell around 1% for the week. Nevertheless, the index has gained around 50% since the end of September 2020.

Story #4: Inflation fears return
Stocks pulled back on Thursday morning, following Walmart’s report of weaker-than-expected earnings. The company also predicted slower earnings growth in the coming year, due in part to its commitment to raise the average wage of its workers to USD 15 per hour. The news followed the Labor Department’s report on Wednesday that producer prices increased by 1.3% in January, the biggest increase since December 2009. Retail sales also jumped 5.3% in the month—well above consensus expectations for a 1.1% gain—which many attributed to USD 600 direct payments to lower- and middle-income Americans approved as part of the December stimulus package. Critics of the Biden administration’s new USD 1.9 trillion coronavirus relief plan pointed to the data as evidence that it could overheat the economy and result in a rebound in inflation.

Story #5: Disappointing jobless claims and Winter storm in Texas
Advocates for further stimulus could find support in the week’s data, however. Weekly jobless claims, reported Thursday, jumped to 861,000, the most since mid-January. Housing data also surprised on the downside, with housing starts falling back substantially from a nearly 14-year high. More importantly, perhaps, severe winter weather wrought havoc over much of the Midwest and South, particularly in Texas, where millions lost water and power. The damage helped magnify calls for the assistance to municipalities included in the Biden administration’s relief package. The shutdown of much of the region’s massive oil and gas infrastructure was also expected to have ripple effects across the national economy.

Story #6: Longer-term yields surge to highest level in almost a year
Inflation worries and the retail sales data helped pushed the U.S Treasury yields to their highest level in nearly a year. The 10-year yield rose on Friday to around 1.34%; the 30-year U.S. Treasury also rose, with a yield of around 2.14%. Minutes released Wednesday from the January Federal Reserve policy meeting may have helped limit the general rise in yields, with officials indicating that they would remain committed to their massive asset purchase program for “some time.” Core eurozone bond yields rose as well. The 10-year German bund yield reached about -0.32% on Friday—its highest level since June 2020. Strong PMI numbers also put upward pressure on yields.

Story #7: Shares in Europe ended the week modestly higher
EU stocks were supported by companies posting encouraging quarterly earnings. However, these gains were tempered by concerns that rising inflation and higher bond yields might prompt central banks to begin tightening monetary policy. In local currency terms, the STOXX Europe 600 Index advanced 0.21%. Pace of eurozone economic contraction slowed in February. The latest PMI data indicated that business activity in the eurozone shrank for a fourth consecutive month in February, although the pace of contraction slowed as a stronger-than-expected pickup in manufacturing offset a continuing decline in services.

Story #8: UK and Switzerland set to ease lockdowns
UK Prime Minister Boris Johnson said that England’s lockdown would be eased in “stages” based on a “cautious and prudent approach.” Johnson, who is due next week to outline plans for reopening the economy, might start by allowing children to return to school in early March, news reports said. The latest UK health data showed that the number of coronavirus cases in England, Wales, and Northern Ireland fell to their lowest levels since early October. Switzerland said it would start lifting some restrictions in March, reopening shops, museums and libraries, zoos, gardens, and sports facilities.

Story #9: Cryptocurrencies on a roll
The crypto surge continues unabated as Bitcoin hit a new al-time high at $57k and crossed the $1 trillion market value for the 1st time ever. Ethereum hit a new all-time high at $2,000. Altcoins such as Binance, Polkadot or Carnado outperformed Bitcoin.

Story #10: Mixed China equity markets
Chinese shares ended on a mixed note on a holiday-shortened week. The large-cap CSI 300 Index slipped 0.5%, while the benchmark Shanghai Composite Index rose 1.1%. The People’s Bank of China (PBOC) drained RMB 260 billion from the financial system, which dampened buying momentum. Now that China’s economy is on firm footing, analysts expect that the PBOC will gradually dial back pandemic stimulus measures.

 

Source: www.zerohedge.com, T Rowe Price, John Hancock.  

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