After oil and metal prices surged, the fear of rising inflation is back and brings the 10y Treasury yield above 3%. It has been almost 4 years since this level was touched and more then 6 years ago these were 'normal' levels. We see the entire yield curve creeping up and it is yet to be seen how the stock market will react on higher yields. The US, Britain and France on Friday night launched more than 100 missiles against Syrian targets in a strike against the Assad regime’s chemical weapons capabilities, but stopped short of attacking Russian or Iranian targets in order to avoid triggering a broader conflict. The western allies had “marshalled their righteous power against barbarism and brutality,” Donald Trump said in a national television address. The strikes were in response to a suspected poison gas attack in the Syrian town of Douma last weekend that killed at least 70 people. “The evil and the despicable attack left mothers and fathers, infants and children, thrashing in pain and gasping for air. These are not the actions of a man; they are crimes of a monster instead,” said Mr Trump. US stocks tumbled more than 10 per cent from their recent highs, officially moving them into correction territory on the first day of the quarter as deepening declines for technology companies and rising trade tension between the US and China unnerved investors. The benchmark index fell 2.2 per cent on Monday, leaving it more than 10 per cent off its high in January, the technical definition of a correction, and putting it below its 200-day moving average, a key technical measure for momentum investors. The technology-heavy Nasdaq dropped 2.7 per cent, erasing its gains for the year. Anxieties were being exacerbated by Donald Trump’s tweets and trade policies. A fresh presidential Twitter swipe against Amazon sent its shares down 5.2 per cent. Tyson Foods, a leading US meat producer, fell 6.2 per cent as China placed tariffs on US pork imports in retaliation for Mr Trump’s duties on steel and aluminium. US stocks had their largest one-day gains for more than two and a half years on Monday, as fears of a trade war eased and investors regained their taste for technology shares. The improved mood on Wall Street reversed some of last week’s upheaval, with the S&P 500 — which last week suffered its worst weekly performance in more than two years — adding 2.7 per cent. The Dow Jones Industrial Average was up 2.8 per cent and the Nasdaq Composite increased 3.3 per cent. The positive sentiment flowed through to Asia-Pacific markets on Tuesday, with the Topix in Tokyo rising 2.2 per cent and the Hang Seng index in Hong Kong climbing 0.9 per cent. Investors pointed to optimism over trade talks between the US and China, after Steven Mnuchin, the US Treasury secretary, told Fox News on Sunday that he was “cautiously hopeful” that an agreement between the US and China could be reached. Britain secured the economic prize of a 21-month Brexit transition on Monday, offering the EU concessions over sovereignty in exchange for stronger assurances that a cliff-edge exit would be avoided next year. The conditional agreement reached by Michel Barnier, the EU’s chief negotiator, and David Davis, the UK’s Brexit secretary, represents one of the most valuable breakthroughs for UK business since Brexit talks began. Markets welcomed what Mr Davis hailed as a “significant” moment in talks, which would allow business to stop “guessing” about the immediate aftermath of Brexit. Sterling climbed above $1.40 to the dollar to reach its highest level in three weeks. The leaders of the other 27 EU member states are expected to acknowledge the progress made at a summit on Friday, as they adopt new guidelines for Mr Barnier to negotiate a framework for future relations. Facebook’s shares fell the most in four years on Monday, wiping $36.7bn off the market value of the world’s largest social network as a backlash intensified over claims it had been used to harvest the data of millions of US voters. EU lawmakers joined their UK and US counterparts by saying they would investigate reports that Cambridge Analytica, a data analysis firm employed by Donald Trump’s presidential campaign, mined the personal data of 50m users to create profiles to target them in elections. The reports in The New York Times and The Observer say the company broke Facebook’s rules by using data collected solely for research. Yields on one-year US Treasury bills are hitting levels not seen since the financial crisis, driven by a combination of tighter Federal Reserve policy and looser fiscal policy. The one-year Treasury bill yielded 2.052 per cent in afternoon trading on Friday. The last time they were so high was in 2008, when the Fed was cutting rates aggressively to fight the worsening US financial crisis. Nearly a decade later, market prices suggest that traders overwhelmingly expect a policy tightening when the Fed meets on March 21, which would mark the sixth quarter percentage point shift higher in the overnight borrowing rate in the current cycle. The steady tightening of Fed policy — the central bank has decided to shrink its balance sheet as well — has contributed to the rise in Treasury yields. France and Germany’s finance ministers and most senior central bankers have joined the chorus of politicians and regulators calling for a coordinated clampdown on bitcoin and other virtual currencies.Whilst a handful of smaller European banks are breaking ranks with the rest of the sector by giving investors access to cryptocurrencies and advising on initial coin offerings, despite an intensifying effort by regulators to clamp down on the area. US Senate leaders have reached a bipartisan budget deal that would keep the government funded for two years, lifting the caps on military and domestic spending and promising an end to the budget crises that have dogged Congress. Investors piled into the perceived safety of US Treasuries and bet on a further ramp-up in equities market volatility amid ructions in the global financial markets. The CBOE volatility index (Vix), which measures implied volatility in the S&P 500 over the next month, rocketed past 50 for the first time since August 2015, from under 14 at the end of January. The gauge has averaged about 20 since 1990.
One of the main beneficiaries of OPEC-led production cuts is the producers' major competitor, U.S. shale oil. U.S. oil producers are staging a dramatic comeback amid a recovering oil price that has allowed many of them to restart operations. The latest monthly report from the IEA comes at a time when crude futures have climbed to highs not seen since the early days of a slump in December 2014. Brent crude futures hit a peak of $70.37 a barrel on Monday, with the global benchmark since paring some of its recent gains to trade at $68.69 on Friday morning. Worldwide interest rates are rising, but in the UK the Gilts remain on the current low yields. Uncertainty about the Brexit makes investors anxious about what the British economy can do in the near future. The economy isn't showing signs of retracement, and also the BOE is planning to increase rates, but the markets doesn't buy it at this moment. In the currency markets as well, it seems silent with the EUR-GBP trading just shy of 0.90 for several months now. Analists still believe the BOE will raise rates more than once in 2018, which might bring the yield of Gilts in the same direction as bunds and treasuries. Japan’s Topix index on Friday closed at its highest level since late-1991, continuing a powerful global equities rally in the first trading week of 2018, prompting a renowned critic of market bubbles to warn that investors should prepare for a “melt-up”. The FTSE All World index has added 2 per cent since traders and investors returned from the new year holiday, extending 2017’s rise of 22 per cent — the fourth-best year since the benchmark started in 1993. The Dow Jones Industrial Average rose above the 25,000 level as Wall Street opened on Thursday and the S&P 500 pushed further into record territory with a gain of 0.4 per cent. Surging technology share prices on Tuesday propelled the Nasdaq Composite past the 7,000 level for the first time. Buoyed by the passage of tax reform late last month, Wall Street analysts have upgraded earnings estimates for S&P 500 companies, while oil’s rally to its highest level since May 2015 has been a boon for energy shares — which have led the US benchmark over the past month. The price of oil has a great beginning of 2018. Prices went above $60 a barrel, which was partly due to the unrest in Iran. Also the production cuts of OPEC gave the price of oil, and also the share prices of oil producers, a headstart in 2018. Several investment banks raised their oil price targets already. We're still far away from the prices of over $100 a barrel, last recorded in 2014. The cryptocurrency, whose meteoric rise has been labelled a bubble by many critics, fell as much as 31.8 per cent from its Thursday evening peak to $10,775 per coin, according to Bloomberg data, before climbing more than 34 per cent to $14,400 by Friday afternoon in New York. Trump made a second proposal to shut down Obamacare but just like the first time, the second proposal didn't get a majority in the Senate. The republicans which have a majority in the Senate weren't all in favour of the proposed adjustments which gave Trump another defeat. The financial markets didn't like the President to be 'toothless' and sold the USdollar against the euro which resulted in an exchange rate for the EUR/USD of over 1.15 for the first time in almost 2 years. European interest rates are rising fast this week, with German 10 yr yields almost up 100% in a week to 0.47%. Rates were rising after statements from Mario Draghi where he mentioned that the ECB believes that the factors which are suppressing inflation are slowly fading away. This was considered to be a hint that quantitive easing will also be wind down as early as the end of this year. Brussels was accused of undermining EU efforts to end taxpayer bank bailouts after it allowed Italy to provide nearly €17bn in state aid for the wind-up of two stricken regional lenders. The European Commission and Italian authorities hammered out a plan over the weekend to liquidate Veneto Banca and Banca Popolare di Vicenza, with part of their assets and liabilities being sold to Intesa Sanpaolo, Italy’s largest bank. Senior bonds are shielded from losses as part of the plan. Junior creditors and shareholders will be wiped out by the rescue. “The promise that the taxpayer will not stand in to rescue failing banks any more is broken for good.” Due to extreme demand of a new coin, Status, which is linked to the Ethereum network there was downtime on the network. Some investors offloaded there coins and 'probably due to a fat finger' there was a massive sell order which flash crashed the Ethereum coin value with -99%. Expect more heavy volatility. Brent crude oil remained mired below $45 a barrel on Thursday leaving it further in a bear market as traders continue to lose faith in Opec’s ability to deliver on production cuts agreed last month. MSCI, the most influential indexer of emerging market equities, decided to include domestic Chinese A-shares in its main global indices. The 222 A-shares slated for inclusion a year from now will represent only 0.73 per cent of MSCI’s flagship emerging markets index, the cohort is far from insignificant. Estimates that passive and active investors who track the index will be obliged to invest about $15bn in the Chinese shares. |
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March 2021
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