Market Commentary – March 3, 2021

Kevin Jock

3rd March 2021

    Wall Street latched onto bubble warnings from China’s Chairman of banking and insurance commission, driving broad-based benchmarks lower across the board. Guo Shuqing comment he was “worried the bubble in foreign financial markets will one day pop” pointing to ultra-loose monetary policy in US and European markets resulting in a divergence with the real economy. Bank of America echoed similar concerns as their proprietary contrarian indicator revealed Wall Street near extreme bullishness.

    Meanwhile, reassurances from several ECB officials prevented losses on Europe’s indices. Board member Fabio Panetta remarked on the recent spike in Treasury yields “is unwelcome and must be resisted”. ECB Vice-President Luis de Guindos echoed similar sentiments, sounding the bank has “the flexibility that is needed in order to react” should any unwarranted yield levels undermine the economy.

    Mixed start in Asia with the S&P200 and Hang Seng rallying 0.6% and 1.6% respectively on open. The Nikkei remained unchanged weighed down by Tokyo’s Governor Yuiko Koike requesting an extension to the coronavirus state of emergency.

    Gold touched on an 8-week low before recovering to end in positive territory at $1,738. In the face of rising yields, appeal for a non-interest paying asset has been lacklustre as well as increasing competition from the likes of bitcoin seen as a better alternative to hedge inflation risk.

    Among majors, the U.S. dollar has become less enticing as long-dated Treasury yields have now reached back to pre-pandemic levels. Crude dipped below $60 after the American Petroleum Institute reported a build in inventories. And bitcoin fluctuates around the $49,000 level.

DAX

Figure 1 (Source: IS Prime) DAX Daily : Despite the government announcing an extension to lockdowns till March, the German DAX consolidates below record-highs as investors anticipate an economic recovery this year.

Headliner to Review

  • China’s Caixin service industry PMI dropped to 51.5 in February, a 10-month low, which was in line with expectations.
  • Canada’s GDP increased for eight consecutive months in December last year, and the monthly growth rate slowed again to 0.1%, which was the same as last April. The minimum growth rate is still about 3% lower than before the pandemic in February last year, but it is in line with market expectations.
  • The U.S. IBD economic optimism index rose for three consecutive months in March this year, from 51.9 in February to 55.4, the highest since before the pandemic in February last year. It was far better than the market expectations of 52.9.
  • The New York area business conditions index unexpectedly fell sharply for the second consecutive month and fell back into contraction. It dropped from 51.2 to 35.5, which was another three months after falling below the 50 threshold. The contraction rate was even higher than that in May last year. The market expected to rebound to 52.

Headliner to Watch

  • All eyes on the U.K. budget release. A 5bn pound grant scheme is expected to help restart small business on top extending the furlough scheme until the end of June.
  • ADP non-farm employment set for a healthy increase from 174k to 203k.
  • RBNZ Governor Adrian Orr will speak about the future of monetary policy at an economic forum hosted by Waikato University.

Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice.

Authors:
Antony Tan
Ben Li
Kevin Jock