The US Treasury Bond markets continue to dictate the markets as we enter a new month. Surging bond yields continued to dominate the markets as the previous weeks 1.3 yields were surpassed surging to 1.6% late last week before a slight correction was seen into Fridays close. With the bond market viewed by many as the dog that wags the markets tail, it seems the financial community are not buying into the Federal Reserve’s lower for longer dovish stance on rates, with the Bond market pulling forward the forecast on when we could see the rates liftoff into 2023.
As Yields sit at these highs many questions will be asked of the globe's central banks as the markets goade their cautionary approach. With the vaccination trail in the Western world progressing well as the UK surpassed 20 million vaccinations and the US vaccinating more than 2.5m people in one day alone over the weekend there is reason to be optimistic.
As daily cases and hospitalisations continue to fall, the question falls with Central Bankers and Governments over when do we lift off, all very wary of the twists and turns to date during the pandemic. Therefore a cautionary approach will likely be seen in the coming months as we head into the spring, knowing that it's notably less damaging to do so.
As the US President Joe Biden gets his stimulus plan through the House of Representatives, he now has under 2 weeks (March 14th) to get agreement in the Senate, albeit, minus the $15 minimum wage target he had hoped to achieve, even losing the vote and support of 2 Democrat seats in the House meaning the Senate could well prove more damaging.
For now, under the pressure of spiralling yields, the stock market is holding up despite a poor week, with higher yields and potentially interest rates causing investable alternatives to stock market participants. For now though, sell offs are still attracting the dip buyers and damage to the buoyant stock markets remains superficial.
In the UK the pound finally ended its 5 day of fresh high continuous spell at the end of the week having hit the highs of 1.4250 against the US Dollar, and lows of 0.8540 against the Euro. For the UK there was no specific trigger for the turnaround, it felt more like a long market getting caught on a stop trigger.
For now we continue to see a higher Pound into the end of this quarter with the Eurozone still lagging in Covid cases, vaccinations and subsequently no closer to the consideration to end lockdowns, EUR/GBP remains the trade for downside appreciation.
This week does bring the UK budget. The prolonged and sensible approach by the UK Government to slowly ease the public out of their houses, holding back Retail and Entertainment industries and urging home work where possible will make the need to extend the furlough Government support lifeline to businesses imperative.
So as Rishi Sunak again spends the question will be “where will that money come from?” with it thought pensions of over £1 million and high earner tax rates could be his target. This for us, will be the interesting part of Wednesday's budget with Sunak wary perhaps of bringing in tax hikes too soon even though we all know they are coming.
Have a great week ahead
The Week Ahead:
Tuesday - The Reserve Bank of Australia’s interest rate decision will dominate the mornings session where they are expected to leave rates unchanged. German Retail Sales and Unemployment, UK HPI and Eurozone CPI come in the morning. In the US session we get Canadian GDP and the Fed’s Daly and Brainard talks will come into focus.
Wednesday - Australian GDP comes first before China's Caixin Services PMI. In the European session we get Services PMI’s from France, Spain, Germany, UK and Eurozone. At midday it's the UK Budget before US ADP Employment and US PMI’s.
Thursday - Australia's Retail Sales and Trade Balance start the day. Next up is UK Construction PMI as well as Eurozone Economic Bulletin, Retail Sales and Unemployment numbers. In the US session we get US Challenger Job Cuts, Weekly Unemployment, Factory Orders and Jerome Powell speaking at 5pm.
Friday - In the European session we get German Factory Orders, French Trade Balance, and Italian Retail Sales as well as UK Halifax HPI. In the US Session is Canadian Trade Balance and US Non-Farm Payrolls, Unemployment Rate, Average Earnings and Trade Balance.