Continuing Rise of Long-Term U.S. Bond Yields Lifts Dollar but Depresses Equities

March 8, 2021

The 10-year Treasury yield’s uptrend that began from 0.89% in mid-December has been extended another three basis points to 1.60%. The senate approved a $1.9 trillion pandemic relief package along partisan lines over the weekend, and  investors are concerned that U.S. inflation will exceed the Fed’s expectations in both the short and long run.

Bond yields in other key economies haven’t matched the extent of the U.S. increases. The 10-year bund yield is one basis point higher, while the 10-year British gilt yield is unchanged. The 10-year Japanese JGB climbed 3 basis points but is only at 0.11%.

The DXY dollar index advanced 0.3% overnight and is currently pressing near the top of today’s high-low range. Key bilateral dollar exchange rates have climbed today by 1.3% versus the peso, 0.8% relative to the kiwi, 0.5% vis-a-vis the Chinese yuan and Aussie dollar, 0.4% versus the euro, 0.3% against the Swiss franc, Canadian dollar and Japanese yen and 0.2% vis-a-vis sterling. The Turkish lira fell to its weakest level since Christmas.

U.S. equity futures are lower, led by a 1.6% drop in the tech-intensive Nasdaq. Stock markets in the Pacific Rim today lost 2.3% in China, 1.9% in Hong Kong, 1.0% in South Korea, 0.8% in New Zealand, and 0.4% in Japan. European equities are firmer, however.

The price of gold dropped 0.8% to a 9-month low of 1,685.5 per ounce, while that of WTI oil touched a 29-month high and shows a net 0.4% rise from Friday’s close.

Today’s most disappointing data news was a 2.5% drop in German industrial production in January that more than reversed December’s 1.9% increase. This was the first monthly decline since a plunge of 17.5% last April. Analysts had been projecting a marginal increase, and the unexpected drop was concentrated in construction, capital goods and consumer goods. Output was 4.2% below the pre-pandemic level of February 2020, and 3.9% below its year-earlier level.

Several other data releases today have been encouraging.

  • Japan’s economy watchers index rebounded to a 3-month high of 41.3 in February from January’s 31.2, reflecting encouraging vaccine developments. The economy watchers futures jumped 11.4 point and printed above the 50 threshold.
  • Japan’s January index of leading economic indicators improved to a 28-month high, and officials upgraded their assessment of the coincident indicators index for the first time since August, claiming the trend is signaling a possible turning point. That’s the best assessment since early 2019.
  • Japan recorded a JPY 647 billion current account surplus in January that embodied a surprisingly small JPY 130 billion merchandise trade deficit. The seasonally weakest month in Japanese trade happens in January, but whereas imports were 10.9% below their year-earlier level, exports increased by 2.7%.
  • China’s January-February trade surplus of $103.3 billion was about 70% greater than forecast due to a 60.6% on-year leap in exports.
  • Consumer confidence in February improved to 11- and 2-month highs in Taiwan and Indonesia.
  • Mexican consumer confidence in February matched January’s 10-month high.
  • Euroland’s Sentix gauge of investor confidence rose 5.2 index points to a 13-month high in March.
  • Danish and Norwegian industrial production climbed 1.3% and 1.1% on month in January, and each was higher than their year-earlier level.

Japanese on-year growth in bank lending in February of 6.2% matched the pace seen in the second half of 2020. Chinese foreign exchange reserves slipped $6 billion to $3.205 trillion.

Ireland’s construction purchasing managers index bounced above January’s 8-month low of 21.2 to a still depressed 27.0 but embodied the best 12-month confidence level in a year.

Spanish industrial production dropped 0.7% on month and 2.2% on year in January.

Swiss unemployment ticked up 0.1 percentage point to a seasonally adjusted 3.6% in February.

Bank of England Governor Bailey said no decision has been made to impose a negative interest rate. He’s cautiously positive about the U.K. economic outlook, but implied that the operative word in that assessment is “cautiously.”

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


Tags: ,


Comments are closed.