Hey Folks, this past week did show the effect a burst of higher interest rates can alter price action outcomes! In this case, higher rates pushed Equities down. What does this mean for the future of interest rates, the yield curve and inflation. Get my take in this week’s Round-Up;
WEEKLY SOUND BITES;
• Major indexes 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 Composite index suffered its worst drop since October. We are continuing to see a rotation into cyclical shares as vaccine progress fueled optimism about the reopening of the global economy. The shift led value stocks to handily outperform their growth counterparts, leaving them well ahead for the year-to-date period. 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 Jerome “Power Ranger Boom Boom” Powell confirmed policymakers’ dovish stance in testimony before Congress. But how long with this last and will the markets believe him?
• The week’s strong economic signals also seemed to feed inflation worries. Weekly jobless claims hit their lowest level (730,000) in three months and recorded their biggest decline since August. Personal incomes, reported Friday, 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 (excluding defense and aircraft) capital goods orders rising 0.5%.
• Inflation worries, stronger-than-expected economic data, technical factors, and weak auction results combined to push the yield on the benchmark 10-year U.S. Treasury note to around 1.61% on Thursday afternoon, its highest level in over a year. 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.
• In the UK, Prime Minister Boris “Bull Dog” Johnson unveiled a plan for gradually and irreversibly lifting lockdown restrictions in England. And Q4 German GDP data were revised up 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 also rose to 93.4 in February from 91.5 the month before, the highest since March last year, the EC said.
• 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. China investors are focusing on the National People’s Congress (NPC) that starts March 5. In addition to reviewing the past year’s performance, the annual parliament meeting will offer a road map for future economic plans, including goals for 2021 and Beijing’s latest five-year development plan.
Enjoy this Week’s Round-Up;
Don’t Be a Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
