Market Commentary – March 18, 2021

Kevin Jock

18th March 2021

    Federal Reserve Chair Jerome Powell did not disappoint amid the much-anticipated FOMC meeting on Wednesday. The central bank reaffirmed their dovish stance projecting near-zero interest rates till 2024 despite a pick-up in inflation expectations, of which the Fed deems fleeting. Economic growth was upgraded to 4.2% this year, core inflation to average 1.8% and joblessness to drop below 5%. Wall Street welcomed both the tune of the statement and the tone of the conference with the Dow Jones settling at all-time highs. Both the S&P500 and Nasdaq recovered from an intra-day tumble following a surprise comment by President Biden early session when he said Putin “will pay a price” for Russia’s attempt at undermining US 2020 elections.

    U.S. sentiment seeped into European counterparts as the Euro Stoxx briefly breached into uncharted territory whilst the German Dax closed at its highest. Despite ECB President Christine Lagarde expecting a contraction in Q1, Powell’s remarks “When the U.S. economy is strong that strength tends to support global activity as well” suggests a U.S. recovery would too lift Europe out of its trough. On the vaccination front, the EU is considering blocking supplies to the U.K under emergency Covid controls calling it a “crisis of the century”.

    Ahead of high-level talks between U.S. – China on Thursday, officials envision a proper meeting between President Biden and Xi a month after. Though tensions remain on a tight rope after the Biden administration sanctioned 24 Chinese and Hong Kong officials for their role in undermining autonomy in the territory. The Hang Seng fell 1.1% on the news. Meanwhile, Australia’s S&P200 edged higher on improving jobs data and the Nikkei up 0.6% during Asia session as the government announces plans to lift the state of emergency on March 21st.

    Demand for the Greenback dropped sharply across the board following FOMC, gold closed higher at $1,745 and oil drifts lower as last months’ supply shock dissipates. Elsewhere, bitcoin back up above $58,500.

Dow Jones-2

Figure 1 (Source: IS Prime) Dow Jones Weekly : As Dow continues to break-records, the Fed ensures flood-gates to liquidity are kept open for years to come.

Headliner to Review

  • As expected, the Fed kept interest rates unchanged. The Federal Reserve has kept the federal funds benchmark interest rate unchanged from zero to 0.25% and will continue to maintain a monthly bond purchase scale of $120 billion.
  • US President Biden said that he would increase taxes on Americans with an annual income of more than $400,000, hoping to solve inequality by taxing the rich, but admitted that the tax increase plan is unlikely to receive Republican support.
  • U.S. crude oil inventories increased for four consecutive weeks for the week ended March 12. The weekly increase further decreased from 13.8 million barrels to 2.396 million barrels. The total amount increased to about 508.1 million barrels, which was less than market expectations.
  • Canada’s consumer price index (CPI) in February this year further increased slightly to 1.1% year-on-year. It has been rising for nine consecutive months.

Headliner to Watch

  • No changes expected from the Bank of England on today. Rather investors are keen to hear Governor Andrew Bailey and how the central bank will contend with rising inflation expectations. Remarks from previous public appearances highlighted that the BOE will not make a move unless inflation is seen sustained at above 2%.
  • ECB President is due to testify before the Committee on Economic and Monetary Affairs of the EU Parliament in Brussels.

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Antony Tan
Ben Li
Kevin Jock