STOCKS, CRYPTOS AND GOLD TAKE IT ON THE CHIN AS BOND YIELDS RISE - our top 10 stories from last week

Read the 10 stories to remember from the week which ended February 26th, 2021.  

 

Story #1: Stocks fall on interest rate and inflation fears
The major US equity benchmarks pulled back sharply in response to a steep rise in longer-term Treasury interest rates. The S&P 500 Index recorded its biggest weekly decline in a month, while the Nasdaq suffered its worst drop since October. Consumer discretionary shares were particularly weak, dragged lower in part by Tesla, while a drop in Apple shares weighed on the technology sector. Energy stocks outperformed as oil prices rose. Rotation into cyclical shares continues as vaccine progress fuels optimism about the reopening of the global economy. The shift led value stocks to sharply outperform their growth counterparts, leaving them well ahead on a year-to-date basis.

Story #2: Long-term yields hit highest level in over a year
Inflation worries, stronger-than-expected economic data, technical factors, and weak auction results combined to push the yield on the 10-year U.S. Treasury note to around 1.61% on Thursday afternoon, its highest level in over a year. However, bonds were panic bid on Friday as the 10-year dropped by 14 basis points, the largest decline since March 2020. Investment-grade corporate bond spreads widened in anticipation of rising rates, but movements were hemmed in by more balanced flows and healthy trading volumes in the secondary market.

Story #3: The week’s strong economic signals seemed to feed inflation worries
Weekly U.S jobless claims hit their lowest level (730,000) in three months and recorded their biggest decline since August. Personal incomes jumped 10.1% in January, thanks largely to payments from the coronavirus relief package passed in December. It was the largest gain since April, following the passage of the first pandemic relief package. The manufacturing sector remained in solid shape, with core capital goods orders rising 0.5%. Fears that stronger growth and rising inflation would lead the Federal Reserve to begin removing monetary stimulus sooner than expected abated on Wednesday, when Fed Chair Powell confirmed policymakers’ dovish stance in testimony before Congress. Powell said that it may take more than three years to reach the central bank's inflation goals.

Story #4: New relief package may be smaller than proposed
Meanwhile, Democrats in Congress continued to move toward passage of another round of coronavirus relief before some current benefits expire on March 14, with the House of Representatives expected to pass a bill shortly after the trading week ends. Reports surfaced that President Joe Biden might be willing to cut the size of his proposed USD 1.9 trillion package, however, perhaps by lowering the income cap for individuals to receive direct payments of USD 1,400. The president has stated that he is open to suggestions to “make the package better and make it cheaper.”

Story #5: Shares in Europe fell along with global markets.
The STOXX Europe 600 Index ended the week 2.38% lower. The UK’s FTSE 100 Index also came under pressure from a stronger British pound. The currency rose to its highest level in almost three years, reaching USD 1.42 before pulling back from this peak, as the rapid rollout of coronavirus vaccines fueled recovery hopes and investors priced in an interest rate hike over the next two to three years. Core and peripheral eurozone government bond yields rose, tracking moves in U.S. Treasury yields. Christine Lagarde, president of the European Central Bank, and other policymakers warned markets that they were monitoring borrowing costs, but the consequent decline in yields was short-lived. Gilt yields also rose in line with other developed markets.

Story #6: German GDP stronger than expected; eurozone confidence improves, UK begin reopening
Q4 GDP data were revised up unexpectedly to a growth rate of 0.3% from an initial estimate of 0.1% on strong exports and solid construction activity. The full-year figure was increased to -4.9% from -5.0%. The eurozone Economic Sentiment Indicator rose to 93.4 in February from 91.5 the month before, the highest since March last year, the EC said. Separate surveys showed consumer confidence improving in Germany and Italy, but sentiment remained little changed in France. UK Prime Minister Boris Johnson unveiled a plan for gradually and irreversibly lifting lockdown restrictions in England from March 8 and ending on June 21. Only 6.4% of the European Union's population has received a vaccine, European Commission (President Ursula von der Leyen said after an EU video summit.

Story #7: Chinese shares fell; Chinese Government considers allowing citizens to invest overseas
The Shanghai Composite Index shed 5.1%, while the large-cap CSI 300 Index fell 7.7% in its worst weekly performance since October 12, 2018, according to Reuters. Profit-taking was evident in highflying companies related to semiconductors, electric vehicles, and automaking, as well as in names that recently had an IPO. However, shares of airlines and Macau gaming companies did well, as investors rotated into so-called COVID-off names that are expected to see a demand revival as travel and quarantine restrictions are relaxed. China is considering a change in how its citizens can invest in overseas assets. Currently, Chinese citizens can purchase foreign currencies up to USD 50,000 annually for overseas travel, study, or work but are not permitted to buy overseas financial assets or property. The rule change would allow them to buy overseas securities and insurance policies within the USD 50,000 foreign exchange limit, according to a State Administration of Foreign Exchange official. Some analysts view the proposal as an attempt to slow the renminbi’s appreciation after it gained about 6.5% against the dollar in 2020.

Story #8: The reflation/growth story weighed on precious metals
Gold and Silver's had their worst week since November 2020. Indeed, the surge in real yields weighed on gold. Not all commodities suffered as Copper managed to cling to gains and crude outperformed.

Story #9: Worst week for cryptos in almost a year
Bitcoin’s rally hit a speed bump as the world’s largest cryptocurrency witnessed its worst weekly decline in almost a year amid wider losses in risk assets. Bitcoin slumped 20% this week, the most since the pandemic-fueled selloff last March. The wider Bloomberg Galaxy Crypto Index, tracking Bitcoin, Ether and three other cryptocurrencies, was down 23% for the same period. Tesla chief executive Elon Musk said the prices “seem high” on the weekend, seen by some as an initial catalyst for the week’s selloff. Heavy selling in the Grayscale Bitcoin Trust, the world’s largest such fund, as well as the expiry of Bitcoin options also contributed to the volatility.

Story #10: Buffett upbeat on U.S. and Berkshire, buys back stock even as pandemic hits results
Not even the coronavirus pandemic could dampen Warren Buffett's enthusiasm for the future of America and his company Berkshire Hathaway Inc. Buffett used his annual letter to investors to assure he and his successors would be careful stewards of their money, where "the passage of time, an inner calm, ample diversification and a minimization of transactions and fees" would serve them well. He also retained his trademark optimism for Berkshire, buying back a record $24.7 billion of its stock in 2020 in a sign he considers it undervalued, and the economy's capacity to endure "severe interruptions" and enjoy "breathtaking" progress. "Our unwavering conclusion: Never bet against America," he said. The letter breaks an uncharacteristic silence for the 90-year-old Buffett, who has been almost completely invisible to the public since Berkshire's annual meeting last May.

 

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

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