Bonds tumbled on inflation fears, Nasdaq down 3 weeks on a row, Energy stocks on fire - our top 10 stories from last week

Read the 10 stories to remember from the week which ended March 5, 2021.  

 

Story #1: Rising yields continue to dominate sentimentUS equities finished mixed as longer-term interest rates continued their ascent. Investors seemed divided about whether the rise in longer-term bond yields was due to a welcome upswing in growth expectations or a worrisome increase in inflationary pressures. The week started out on a strong note, in part to continued optimism about the rollout of coronavirus vaccines. Progress in the Biden administration’s USD 1.9 trillion stimulus package appeared to further bolster growth expectations. The week did not bring any significant inflation data, but Wall Street appeared to keep a close eye on rising Treasury yields, as well as increases in commodity and input prices, particularly in the auto industry.

Story #2: Value stocks outperformed Growth; dip buying took place on Friday afternoon The rise in rates again weighed on growth stocks by increasing the discount on future earnings, while value stocks managed gains, according to Russell indexes. Within the S&P 500 Index, energy shares outperformed with a +10% gain for the week as oil prices hit their highest levels in over a year. Technology shares and consumer discretionary stocks ended the week lowercontinued to be dragged lower by electric vehicle maker Tesla. On Friday, the main US equity benchmarks got rescued by the biggest Intraday dip-buying since 2011 EU Crisis Bailouts. The Nasdaq is down 3 weeks in a row (worst streak since September), but the late-day sudden panic-bid pushed the S&P and Dow into the green for the week...

Story #3: Powell comments disappointAt a jobs panel organized by The Wall Street Journal on Thursday, Fed Chairman Powell offered no new commitments to continued asset purchases or other actions, however, while simultaneously restating the policymakers’ willingness to see inflation rise above 2%. Powell’s satisfaction with the current stance of monetary stimulus appeared to disappoint investors broadly, leading to a sharp sell-off in equity and bond markets on Thursday afternoon.

Story #4: A strong US Jobs report February U.S jobs report surprised significantly on the upside, with nonfarm payrolls rising by 379,000, roughly twice consensus estimates. Nearly all the gains came in the leisure and hospitality industry, especially restaurants, reflecting reopening steps in many parts of the country. The unemployment rate also fell a bit more than expected, to 6.2%, a new pandemic-era low. Stocks vacillated on the news: rising, falling, and then rising sharply again.

Story #5: Higher bond yields and widening Credit SpreadsUS Treasury yields surged on the week with the longer-end worst with Powell's failure to deliver the biggest catalyst. In Europe, Core and peripheral eurozone bond yields rose as long-term inflation expectations strengthened. Uncertainty about whether the ECB would act to suppress the increase in borrowing costs, combined with the Fed reiterating its dovish stance, gave yields another boost. UK gilt yields broadly moved higher, lifted by Sunak’s unveiling of the annual budget. On the credit side, the investment-grade primary calendar was very active, and weekly issuance equated to almost half of the expected level for the month of March. Later in the week, increased selling from Asia, coupled with Fed Chair Powell's comments regarding inflation, challenged sentiment and contributed to widening spreads. High yield bonds and broader risk markets also experienced weakness after Powell’s comments. On a positive note, OPEC’s decision to maintain current production levels instead of the widely expected increase sent oil prices higher and supported the performance of energy names.

Story #6: European equities ended higher Shares in Europe ended higher, buoyed by the prospect that easing restrictions implemented to curb the coronavirus’s spread and supportive monetary and fiscal policies could set the stage for an economic recovery. However, gains were curbed by growing expectations that central banks would act to stem inflation. The pan-European STOXX Europe 600 Index rose 0.91% in local currency terms. Major stock indexes also advanced, while the UK’s FTSE 100 Index climbed 2.27% on the week, lifted by finance minister Rishi Sunak’s annual budget, which called for more fiscal stimulus and the Office for Budget Responsibility’s projections that the economy would recover to its former size earlier than previously expected.

Story #7: EU accuses UK of breaking Brexit dealThe EU accused the UK of breaking the terms of the Northern Ireland Protocol, a key part of the UK’s post-Brexit deal with the EU, after Britain unilaterally extended grace periods for border checks on food imports to Northern Ireland. The EU said it would take legal action, with a view to imposing tariffs and fines. Irish paramilitary groups said in a letter to Prime Minister Boris Johnson they would temporarily withdraw support for the 1998 Good Friday Agreement because of the disruption to trade caused by the Northern Ireland Protocol. However, a Loyalist politician who met their umbrella group said there was no sign they would revert to violent opposition, according to the Irish Times.

Story #8: BoJ retains its grip on yield curve controlJapan’s stock markets generated mixed returns for the week, with the broader TOPIX Index gaining 1.70%. The yen weakened and closed above JPY 108 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.09%, its lowest level since mid-February, as BoJ Governor Kuroda played down the possibility that the central bank would make its policy on yield curve control (YCC) more flexible; he said the policy had been working well to date. Under its YCC policy, the BoJ caps the 10-year Japanese government bond yield at around zero and allows the benchmark yield to move 40 basis points around this target. There had been some expectation that the BoJ would widen the band and allow yields to move higher. Domestic long-term yields tumbled in response to Kuroda’s comments.

Story #9: Chinese shares fell in choppy trade
Chinese shares fell in choppy trade as rising U.S. yields and inflation expectations spilled into the country’s stock market. The large-cap CSI 300 Index fell 1.4%, while local currency A shares shed 0.2%. Technology shares fell in sympathy with recent highflying names related to consumers, electric vehicles, and property management. Hawkish remarks from China’s banking and insurance regulators signaling the need to deleverage and avoid financial bubbles, along with a dovish article in the state-run China Securities Journal mentioning possible interest rate cuts, fuelled significant volatility in financial and technology stocks. On Friday, China unveiled its official 2021 growth target of above 6%, a goal widely seen as conservative.

Story #10: Precious metals tumbled while WITI Oil price is back above $66 With the rise of real yields and the surge of the dollar to its strongest since Thanksgiving (with its biggest week since October), precious metal prices tumbled over the week. Gold futures fell back below $1700 for the first time since Jun 2020. Gold is now down for the 5th week in the last 6. Silver is back below $26, erasing all of the Reddit-Raiders spike. Meanwhile, Oil prices continued their charge higher this week, helped by a surprise no-hike from OPEC+, sending WTI back above $66 for the first time since April 2019.

 

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

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