Market Commentary - February 17, 2021
Energy crisis across the U.S. deepens leaving 5 million Americans without electricity amid unprecedented weather conditions. Volatile session for crude hitting a low of $59.33 on Tuesday but emerging beyond the $60 level by the end of the day. As the economic drag is being tallied, production output has now fallen by 3.5 million barrels a day, a 31% decline. Nonetheless producers are optimistic to begin normalizing production starting this weekend.
Rising yields takes its toll on Wall Street with 10-year Treasury at it highest since pre-COVID-19 pandemic back in February 2020. U.S. benchmarks retreated from their record highs with Nasdaq underperforming declining 1%. The arctic blast has also impeded schedule disrupting coronavirus vaccine distribution in some parts of America.
Meanwhile, European markets followed global sentiments lower. This despite, Treasury Secretary Yellen committing to boosting transatlantic cooperation with the EU. Including “ending the pandemic, supporting a strong global economic recovery, fighting income inequality, and…addressing the threat of climate change”.
Mixed results coming into Asia with Australia’s S&P200 and Japan’s Nikkei recovering from an intraday tumble, whilst the Hang Seng soars 1% ahead of government plans to roll back social restrictions on Thursday.
With U.S. yields increasing, favourability returns to the American greenback as it appreciates against a basket of majors yesterday. Best performing on the USDJPY, up 4 consecutive days equivalent to 146 pips. Elsewhere, gold falls below $1,800 to $1,794. Another day, another attempt at an all-time high with bitcoin attempting to break past $50,000 reaching $50,548 but failed to retain momentum and closed at $48,500 at session’s end.
Figure 1 (Source: IS Prime) USDJPY Daily : Reversal of fortunes with Japanese investors expatriating capital into the U.S. to take advantage of rising yields.
Headliner to Review
- In December of last year, the United States returned a total monthly net outflow of US$600 million in capital. In the first three months since the previous year, the net inflow was significantly decreased to only US$114.7 billion. Long-term net capital inflows decreased to US$121 billion while previous figure of net inflows sharply increased to US$149.2 billion.
- The Eurozone's gross domestic product (GDP) fell by 0.6% quarter-to-quarter in the last quarter of last year, reversing the trend of a 12.4% quarter-to-quarter increase.
- Germany's economic sentiment index rose from 61.8 to 71.2, rising for three consecutive months, hitting a five-month high, which was much higher than market expectations and fell to 59.6.
- Westpac Bank and Melbourne Institute announced that Australia's leading indicators rose from 0.1% to 0.26% for nine consecutive months in January this year.
- Japan’s core machinery orders unexpectedly rose for three consecutive months in December last year, and the month-to-month increase again expanded to 5.2%. The previous figure only rose by 1.5% while the market’s expectation dropped by 6.2%.
Headliner to Watch
- Canadian inflation expected to rebound into positive territory to 0.5%.
- Following two consecutive months of contraction, retail sales in the U.S. to expand 1.1% for January.
- Labour market in Australia remains resilient, expecting a 30.2K gain and an improving jobless rate from 6.6% to 6.5%. However, headwind on the horizon as government employment subsidies are set to expire in March.
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Topics: Market Commentary