Duncan Donald

Mon, Mar 15

As Global Stocks soar, the Tech sector feels the rotation pinch

As we start a new week optimism continues to be the dominating factor in the markets.  As has been the theme in the last 3 weeks the Treasury yields led by in particular the US sector continue to consolidate around the 1.6% area, appearing to shrug off the more cautionary approach the globes central bankers want to take.  


The week starts with the news that not only is US President Biden's stimulus plan agreed but the cheques are on the way with various reports speculating that as much as 30% of the delivered funds could be heading towards the stock markets.


Buoyed by stimulus, better CPI and better employment data the Dow Jones had a very strong weak bursting through all time highs as did the S&P 500. Whilst there was a rebound later in the week the Nasdaq is the laggard as the market rotated from stay-at-home champions vulnerable to Biden taxation, into cyclical “value” stocks.  


As the vaccination programme Stateside rolled on, adviser Fauci warned of the vulnerabilities of a rush to normalisation as he urged those eligible for vaccination to do so.


Wednesday will likely be the key day for volatility this week with the Federal Reserve Open Market Committee meeting. Expectation is that rates remain unchanged at the low levels we are used to but all eyes will be on how Jerome Powell and team comment around the dislocation between their market view and the Treasury Bond Markets view. From recent soundbites it seems unlikely the Fed deviates from the current path but close attention to the detail given must be paid.


The US Dollar also enjoyed a strong rebound knocking GBP/USD and EUR/USD lower with USD/JPY consolidating above the 109 area.  Poor export data from the UK and concerns over the AstraZeneca vaccine weighed on the Pound on Friday. 


We also have an interest rate decision from the UK’s Bank of England on Thursday where again no change in rates is expected with any talk of the possibility of negative rates not expected but likely to cause the biggest moves if confirmed or denied.


The Eurozone is still struggling with the pace of the vaccination programme and heightened cases of virus outbreak with Germany having to admit they are in a third wave of the virus over the weekend and Italy entering a nationwide lockdown until the first week of April. 


The path to vaccination was made harder by AstraZeneca further cutting the supply of vaccines from the original 90 million to just 30 million. Many countries in the bloc have also suspended the company’s vaccines over a few cases of blood clots following vaccination. 


Failure to keep up with the US and UK is starting to hurt EU countries with lockdown easing and curfews hindering the populism of leading parties as we saw in the German regional elections as Merkel’s CDU party suffered a heavy dent in confidence, Dutch elections must also be closely watched this week.


The Week Ahead:


Tuesday - Meeting minutes from the Reserve Bank of Australia come first with Ecofin meetings throughout the day and German ZEW Economic Sentiment data. In the US session the main event will be US Retail Sales.


Wednesday – In the European Session we get the Eurozone CPI Inflation Data. In the US Session firstly its Canadian CPI before the Fed’s interest rate decision and statement from Jerome Powell. Late in the session we get Australia’s Employment data and New Zealand’s GDP.


Thursday – The Bank of England’s interest rate decision at midday will be the main event alongside the press conference from Andrew Bailey. In the US session we get the Weekly Unemployment data.


Friday – The last central bank meeting of the week comes early in the session with the Bank of Japan giving an update before UK Public Sector Net borrowing data, German PPI and latterly Canadian Retail Sales.