With rising US Treasury yields, many investors have wondered about the risk to equity markets. Historically, the speed and underlying drivers of an increase in yields have mattered more than their level, as stocks are able to digest increases that are < 2 standard deviations within a month (~36 bps today). An improving macro backdrop and low base may also contribute to current equity resilience.
This past week was volatile for global equities as investors continued to weigh inflation risks against the potential impact of fiscal stimulus on global economic growth. The S&P 500 fell 2.41%, with growth-style equities seeing the steepest selloffs as rates rose. In Europe, the Eurostoxx 600 and FTSE 100 both ended the week down 2.33% and 1.92%, respectively, despite support from reopening-related stocks after the UK announced steps towards ending its coronavirus restrictions. Read More
Oil prices continued to climb last week on the back of demand expectations, supported by accelerating vaccine rollouts and easing lockdown measures. On the supply side, a slow return for US crude production after the previous week’s freeze in Texas also boosted prices. WTI and Brent crude oil ended the week higher, at $61.50 and $66.13 per barrel, respectively. Read More
US Treasury yields skyrocketed this past week in anticipation of a flood of stimulus measures that would boost the recovery, albeit with some concerns that the higher yields may be associated with higher inflation expectations. The 10-Year Treasury yield ended last week at 1.46% after surpassing 1.6% mid-week, its highest level since February 2020. The 10-Year UK Gilt and German Bund yields followed suit, rising 0.82% and -0.26% respectively, as investors grew confident about the economic recovery, betting on stronger growth and inflation. Read More
The US dollar whipsawed mid-week after rising bond yields attracted demand and sent the US dollar higher following an initial decline, ending the week up 0.63% against a basket of peers. The Euro and British pound, meanwhile, fell against the USD, ending the week at $1.2078 and $1.3945, respectively. Read More
US Core PCE posted 1.5% YoY in January, in-line with expectations and remaining below the Fed’s 2% inflation target, easing concerns surrounding inflation. In the Euro area, HICP inflation increased to 0.9% YoY in January, in-line with expectations, primarily driven by the services sector (+0.65 pp). Read More
The US Consumer Confidence index rose slightly above expectations to 91.3 in February, reflecting a rise in household perception of present economic conditions, which was partially offset by a decline in households’ near-term economic outlook. Read More
US initial jobless claims dropped to 730k for the week ending February 20, significantly below expectations, although the reading may have been artificially lower due to extreme weather that made filing claims difficult. In the UK, the unemployment rate rose to 5.1% in December, printing its highest rate since 2016. Read More
The German Ifo Business Climate Index rose to a greater-than-expected 92.4 in February, driven by an increase in both the current assessment of business conditions and expectations components. The manufacturing component jumped to its highest value since 2018. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
ISM Manuf (Cons: 58.6, Prior: 58.7)
China Composite PMI (Cons: -, Prior: 52.2)
ISM Non-Manuf (Cons: 58.6, Prior: 58.7)
US Jobless Claims (Cons: 755k, Prior: 730k)
Euro area Unempl. (Cons: 8.3%, Prior: 8.3%)
Nonfarm Payrolls (Cons: 180k, Prior: 49k)
US Unempl. (Cons: 6.4%, Prior: 6.3%)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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