Week from 1 to 7 March 2021
The 10-year U.S. Treasury yield climbed back above the 1.5% threshold after Fed Chair Jerome Powell had reiterated Thursday that the central bank would not tighten its ultra-easy monetary policy any time soon, even if the inflation rate is likely to rise as the economy is gaining momentum. Among the first signs of recovery, nonfarm payrolls expanded by 379,000 last month (166,000 in January), driven by substantial increases in restaurant and hospitality jobs. This is twice higher than the consensus forecast (182,000).
Though Jerome Powell thinks moves in inflation will be transitory, he has not reassured investors so far. Rising yields therefore caused stress in the repo market (cost of borrowing U.S. 10-year Treasuries going deeply negative on Thursday, when normally it is the other way round) and triggered a wave of volatility among stock markets (VIX topping 31.7 on the same day before falling back to 24.66 on Friday), adding fuel to the tech correction (-1.36% WTD, third negative week in a row) and bringing the Nasdaq Composite’s year-to-date performance close to zero (+0.25%, -2.06% week-over-week). Small cap stocks also fell in choppy trade after Powell’s speech, but finished the week on a less negative note (Russell 2000 down -0.40%). On the other hand, the S&P 500 managed to break its two-week losing streak on Friday (+0.81% WTD).
Among the S&P sectors, only consumer discretionary did worse than tech over the week (-2.82%) even though most of them rebounded strongly, especially cyclical sectors. Once again, energy led the pack with a double-digit performance (+10.09%) thanks to oil prices (WTI up +7.46% in spite of a record jump in U.S. weekly crude stocks). In the same vein, financials (+4.29%) and industrials (+3.08%) fared well.
European and APAC markets closed mixed. The MSCI EMU was up 0.62% while the Nikkei slid 0.35% and the Shanghai Composite edged down 0.2%. The Caixin/Markit Services Purchasing Managers’ Index (PMI) grew at the slowest rate in ten months, slightly slipping to 51.5 from 52.0 in January.
Jerome Powell’s comments also reverberated across credit markets. U.S. IG bonds (-1.42% WTD, down -3.75% YTD) logically took their cue from the Treasury market while their European peers were edging up (+0.21% WTD; -0.77% YTD). Investors massively sold off emerging debt (-1.78% in local currencies). This asset class lost 5.22% over the last three weeks (-5.29% YTD), as spreads widened to compensate for growing risks. By contrast, high yield bonds appeared to be more resilient to the Treasury sell-off (+0.11% in Europe, -0.11% in the U.S.).
Elsewhere, gold tumbled below the $1,700 threshold (-1.75% at $1,698.50/Oz) as the EUR-USD pair traded 1.87% lower at 1.1910. However, it is worth noting that the greenback extended its gains against all of the major currencies after the strong U.S. jobs report.
Lastly, the Bitcoin jumped back above $50,500 (+12% WTD in USD), recouping half of the losses suffered last week.
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