Watching Stocks, Long-Term Interest Rates, and Events on Capitol Hill

February 23, 2021

Futures trading on the Nasdaq, which fell over 300 points yesterday, are down an additional 1.4% this Tuesday. The half-percentage point rise in the U.S. ten-year Treasury yield since mid-December reflects speculation that inflation and growth may be stronger than assumed later this year but not so much so as to provoke the Fed into tapering its stimulus.

The uptrend in U.S. long-term rates is also pressuring other sovereign debt yields. The 10-year German bund and British gilt yields have risen by 4 and 3 basis points so far today, while the German DAX and British Ftse equity indices are down 1.0% and 0.2%. ECB President Lagarde said central bank officials are closely watching the sovereign debt markets.

In the Pacific Rim today, Japan’s market was closed for the Emperor’s Birthday holiday. Share prices rose 0.9% in Australia and 1.0% in Hong Kong but slipped 0.3% in South Korea and 0.2% in China. Equity watchers will be closely following Brazil’s market, which tumbled 4.8% on Monday.

The trade-weighted DXY dollar index found support around the 90.0 level and is up 0.2%.  The dollar compared to Monday closing levels has risen 0.5% against the Swiss franc, 0.3% relative to the yen, and 0.1% versus the euro but has dipped 0.2% against the Mexican peso and 0.1% vis-a-vis sterling. West Texas Intermediate crude oil’s price climbed 0.7% overnight, and gold edged 0.1% higher.

Capitol Hill in Washington has a number of significant developments today. Fed Chairman Powell delivers his semi-annual Humphrey-Hawkins testimony to the Senate Banking Committee. The House budget committee has approved a $1.92 trillion pandemic relief package, which next goes to the full lower chamber for discussion and a vote. Important confirmation hearings of President Biden’s cabinet choices continue.

On the Covid front, deaths in the United States passed 500,000 yesterday almost a year after the crisis began and account for 20.6% of the global total. The big question now is whether enough people can be vaccinated to avert another large wave powered by more infectious variant strains of the virus.

CPI inflation in the euro area was confirmed at the preliminary finding of 0.9% in January overall and 1.4% for the core index.

U.K. labor market statistics revealed a spike in average weekly earnings to a near 13-year high of 4.7% last quarter (4.1% when excluding bonus pay). A 5.1% unemployment rate last quarter constitutes a 52-month high. Unemployment claims declined about 20k in January, nearly matching December’s result but remaining substantially above pre-pandemic levels. Labor productivity slumped 4.8% last quarter, almost reversing the prior quarter’s 5.6% recovery.

The monthly distributive trades survey compiled by the Confederation of British Industry revealed a tepid rebound in retail and wholesale activity, as the index rose just 5 points to print in February at -45 after it plunged 47 points to an 8-month low in January.

Italian industrial orders in December rose 1.7% on month and 7.0% on year (a 30-month high).

The combined Swiss PPI/import price index was 2.1% lower in January than a year earlier, which constitutes the smallest 12-month rate of decline since February but the 25th sub-zero percent outcome in a row.

Four countries reported consumer confidence. South Korean and Taiwanese consumer sentiment improved to 3-month highs, and Belgian sentiment ticked up one point to a 2-month high. Irish consumer confidence rose 5.1 points to a 2-month high.

CPI inflation of 0.2% in Singapore last month was at an 11-month high, while Cyprus CPI in January reported its greatest deflation rate (-1.6%) since last June. The Czech PPI inflation rate matched December’s zero percent result, and Austrian CPI inflation slowed to an 8-month low of 0.8%.

The Central Bank of Hungary left its Base Rate unchanged as expected at 0.60%, the level established after back-to-back 15-basis point cuts last June and July. Inflation is at 2.7%, not far from target, but a statement released by officials includes tough language regarding the commitment to preserving price stability and changing policy if needed to enforce that goal.

House prices in China during January rose 0.3% on month and 3.9% on year versus 3.8% the month before.

Both U.S. house  price measures reported today showed acceleration in the final month of 2020. The 12-month rate of rise climbed a full percentage point to 10.1% according to the Case-Shiller survey and by 0.9 percentage points to 11.9% based on the FHFA index.

Still to come: U.S. consumer confidence and the Richmond Fed manufacturing survey.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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