Market Commentary – March 4, 2021

Kevin Jock

4th March 2021

    Rekindled concerns in global Treasury markets saw Wednesday yields resume last week’s endeavours, dragging broad-based benchmarks lower. 2021 began with revisions of a bigger than forecasted economic recovery, turned into fears of overshooting inflation and now a risk of liquidity drying up. Recent Treasury auctions saw little demand from secondary participants with primary dealers forced to pick up 40% of the sale, unseen for 7 years.

    Mixed messages from various central bank members across the global have done no favours. Opinions differ from the ECB having flexibility to act if yields from the real economy to the Chicago Fed’s view that the recent rise was healthy. Investors hope Powell will offer some clarity when he speaks about the state of the American economy before a virtual summit hosted by Wall Street Journal.

    Among Wall Street, Nasdaq continues to unperformed, down over 3% as the rotation out of tech intensified in favour of cyclicals set to benefit from Biden’s 1.9tn stimulus arrangement. Though the legislative bill did a hit snag yesterday. With a Senate floor split 50-50 and Republicans united, two vocal Democrats have argued for the package to be more targeted. Elsewhere, European indices fell flat whilst the UK’s Chancellor’s budget deliver failed to stoke enthusiasm in the FTSE100. Asia extended overnight sentiment with Australia, Hong Kong and Japan tumbling lower.

    The price of gold continued to be under pressure near the 9-month low but rebounded to around $1,702. Despite signs of an inventory build up and OPEC anticipated to curb production restraints, crude oil still surged above $61. Meanwhile, bitcoin fails to sustain above $50,000, falling back down to $49,500 this session.

    The closing of major currencies on March 3:EUR/USD closed at 1.2062; GBP/USD closed at 1.3948; AUD/USD closed at 0.7772; USD/JPY closed at 107.01; USD/CAD closed at 1.2656; USD/CHF closed at 0.9198. All in all, the greenback gained, hitting a 7-month high against the Japanese yen along with a 3-month high on the Swiss franc.

USDJPY-2

Figure 1 (Source: IS Prime) USDJPY Daily : Following the break above a long-term trendline, the USDJPY comfortably appreciates to a 7-month high. 

Headliner to Review

  • The Purchasing Managers Index (PMI) of the Eurozone service industry in February this year unexpectedly increased from 45.4 to 45.7, but it has contracted for six consecutive months. The market expected to drop to 44.7.
  • In the United States, ADP private enterprise employment positions continued to increase by only 117,000 this month, which is far less than market expectations of 177,000 increase.
  • The US ISM Service Industry Index stopped rising for two consecutive months, from 58.7 to 55.3, which was far worse than market expectations.
  • The U.S. Service Industry Purchasing Managers Index (PMI) unexpectedly increased from 58.3 to 59.8, the highest since July 2014. It has expanded for seven consecutive months. The market expected to increase to 58.9.
  • The US Mortgage Loan Application Index ended its three-week decline and rebounded by 0.5% on a weekly basis to 794.5. During the period, the refinancing activity index also stopped falling for three consecutive weeks, with a weekly increase of less than 0.1% to 3,850.4.

Headliner to Watch

  • Unemployment rate in Europe expected to remain unchanged at 8.3%

  • In US, unemployment claims expected to increase from 730,000 to 758,000. Revised Non-farm Productivity q/q expected to increase slightly from -4.8 to -4.7%. Revised Unit Labor Costs q/q expected to decrease from 6.8% to 6.7%.

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Authors:
Antony Tan
Ben Li
Kevin Jock