Market Commentary – February 26, 2021

Kevin Jock

26th February 2021

    Surging Treasury yields unnerve risk appetite as Wall Street sees mass exodus in market exposure. The 10-year yield spiked to 1.6%, a 1-year high following exceptional U.S. jobs data indicating an economic recovery is gaining speed. In turn, yesterday’s Treasury auction received a sub-par participation rate further fuelling rising rates. Rotation out COVID-19 beneficiaries towards companies set to profit from Biden’s 1.9tn stimulus package saw Nasdaq tumble 3.6% whilst similar counterparts suffered only 2.5% losses.

    European indices fared no better suffering from a yield curve steepening situation of their own. Pharmaceutical company leaders were put through the ringer on Thursday as EU legislators voiced their frustration over vaccine exports to the US and UK. As a result, the pace of the EU immunisation campaign has thus far been lacklustre. The current inoculation rate stands at 6.6 shots per 100 residents when compared to 20.1 and 28.3 with the US and UK.

    Overnight risk-off sentiment contagion spread throughout Asia as benchmark continues U.S. declines. So much so, Australia’s central bank had stepped in today to make an unscheduled $3bn purchase in 3-year government to suppress flare up in yields. Nonetheless, the S&P200 still declined 98 index points, the Hang Sang gapped 1.6% down on open and the Nikkei lower by 1.9%.

    Bitcoin heads towards one of the worst performing weeks, down 20% so far. Initially set off by Elon Musk’s tweet suggesting prices are too high, the premium held on top of the cryptocurrencies decentralized status is evaporating.

    Favourability returns to the U.S. dollar gaining against a basket of majors as investors position for yield. Crude oil remains unaffected settling at $63.40, though gold declined sharply to a previous support level at the $1,760 mark.

NASDAQ-Feb-26-2021-07-22-07-87-AM

Figure 1 (Source: IS Prime) Nasdaq Daily : Pandemic premium evaporates in tech as Nasdaq slumps severely.

Headliner to Review

  • With the restart of economic activity, the US real gross domestic product (GDP) in the fourth quarter of last year was slightly increased and the annualized quarterly rate only decreased to 4.1%, where the market expected to increase 4.2%.
  • The number of people claiming unemployment benefits for the first time in the United States for the week ended February 20 fell for two consecutive weeks, falling sharply by 111,000 on a weekly basis, to a total of 730,000, which was far lower than the market’s expected total of 838,000.
  • Personal consumption expenditures (PCE), which accounted for two-thirds of US economic activity, was unexpectedly decreased and only continued to rise by 2.4%. The market originally expected to increase 2.5%.
  • The pending home sales index unexpectedly dropped 2.8% month-on-month to 122.8. The market expected zero growth.

Headliner to Watch

  • Mixed CPI data between Spain and France with the former set to show inflationary pressure whilst the latter disinflation.
  • Varying leading economic indicators set to be released on Friday
    • Alongside a 9.4% increase in personal income, personal spending to follow, higher by 2.6%
    • PMI data expected to moderate back lower from 63.8 to 61.0 following a December’s Christmas bump.
    • Consumer sentiment to edge higher to 76.5 from 76.2 but remain at levels far below pre-pandemic.

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Authors:
Antony Tan
Ben Li
Kevin Jock