This week’s two-day Federal Reserve meeting and its comments (if any) on the rising bond yields and inflation will dominate Wall Street and other markets, making for another mixed trading experience.
The Dow rose 293.05 points, or 0.9%, to 32,778.64, the S&P 500 edged up 4 points, or 0.10%, to 3,943.34 and the Nasdaq lost 78.81 points, or 0.59%, to 13,319.87. The Nasdaq was down more than 1.5% at one stage in trading.
The Dow rose 4.07% over the week (its biggest so far this year), the S&P 500 was up 2.64% and Nasdaq ended up 3.09% despite the attempts of investors to rotate out of megatechs.
That was the Nasdaq’s first weekly gain in four weeks.
The Dow in fact hit its fifth consecutive record high on Friday as investors bought shares that should benefit from a strong the new widely forecast reopening of the US economy, an outlook signalled by rising yields in the bond market.
Nasdaq eased after rebounding more than 6% over the past three sessions and the S&P 500 closed flat after hitting an all-time high on Thursday as rising Treasury yields revived inflation concerns. Nasdaq though remains 5.5% under its most recent high on February 10.
But the Nasdaq and S&P 500 posted their best week in five after President Joe Biden signed into law on Thursday one of the largest US fiscal stimulus bills and data reinforced convictions the economy was headed to a high-growth recovery.
Europe’s STOXX 600 index lost 0.26% on Friday but was up 4.1% for the week and touched its highest level since the GFC!
MSCI’s global gauge of stockmarkets though eased 0.17% on Friday.
Emerging markets lost 0.76%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.69% lower, while Japan’s Nikkei jumped 1.73% to be 3% higher at the close for the week.
The recent rise in Treasury bond yields has raised fears of a sudden tapering of monetary stimulus and put downward pressure on Wall Street in recent weeks.
The yield on the benchmark 10-year T bond hit 1.642% on Friday, the highest level since February of last year.
It was helped higher by optimism around the outlook for the American economy in the wake of President Biden’s address to the nation the night before and his promise to have most Americans vaccinated by mid-year.
Yields also rose after the number of weekly new jobless claims came in lower than expected on Thursday, totalling 712,000 for the week ended March 6, below the 725,000 estimate.
The dollar was up 0.25% at 91.668 against a basket of six major currencies, ending the week slightly lower. The greenback had touched an intraday high of 92.506 when yields surged on Tuesday, which was its strongest since November. It then eased but kicked on Friday on the weak optimism that was around on the day.
The Australian dollar – which is seen as a liquid proxy for riskier investments (especially China) – fell by 0.35% to 77.65 US cents. The New Zealand dollar was down against the greenback around 71.80 US cents.
Chinese shares fell 2.2% though and are down 11.4% from their February high. Australian shares rose 0.8% helped by strong business and consumer confidence readings and very dovish comments from the RBA with retail, industrial, utility and health care stocks leading the market higher.
Bond yields rose to a 13-month high in the US but were flat to down in Europe and Australia helped by the RBA and ECB. Metal prices rose but oil and iron ore prices fell. The return to “risk on” saw the $A rise and the $US weaker
Investors piled into equities, while pulling money out of gold and bonds in the week up to March 10, data from B of A Global Research showed.
B of A’s weekly flows report showed investors put $US31.5 billion into equities, while taking $US1.8 billion out of gold and $US15.4 billion out of bonds (hence the rise in yields).
Bond yields rose last week on inflation fears, while high-flying tech stocks sold off as investors rotated into cheaper value stocks.
Citing data from data group, EPFR Global, B of A said last week saw the third-largest flows into emerging market stocks ever, and second-largest into value stocks.
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ASX traders were not all that impressed with what they saw offshore on Friday night, despite a reasonable day’s trading locally at the end of what was a fairly good week
While the ASX 200 ended the week with a gain of 0.79% on Friday and a rise of 0.83% for the week, the futures traders ignored that and what was a scrappy session on Wall Street on Friday night – with some justification.
Despite the Dow ending the week on a record high, the S&P 500 hitting an all-time peak on Thursday and European shares also reaching their highest level since the GFC, ASX 200 futures ended Friday with a 3-point loss, which points to a soft start today.
The weakness in ASX futures came after Eurozone shares fell 0.2% on Friday but the US S&P 500 was up 0.1% despite a further rise in US bond yields and a fall in tech stocks. It was up a bit more in the session while Nasdaq was down 1.5% at one stage but halved the loss by the close.
But the Dow ended at a record high – again (see below).
That mixed global lead will see a flat to softish start to trade for the Australian share market today.
Weaker gold and iron ore prices and a fall in oil as well won’t help local investor sentiment.
The Aussie dollar rose over 78 US cents, then retreated on Friday.
Local traders know that sentiment for the first three days of this week will again be driven by the US markets, especially the two-day meeting of the Federal Reserve and post meeting statement and media conference by Jay Powell, the central bank’s head on Thursday morning, Sydney time.
The Fed will also release its quarterly update to US economic forecasts which will include the so-called ‘dot plot’ which shows where Fed members think interest rates will be in a few months and a year or two’s time. That will be the document markets will seize on for its hint of future thinking on interest rates by the Fed most powerful thinkers.
With all the speculation about inflation and interest rates, the forecasts will take on a new importance, as will updated estimates for US employment and economic growth in the wake of the $US1.9 trillion stimulus package.
And in Australia local investors will have the final figure on February jobs and unemployment on Thursday, as well as the first estimate on February retail sales on Friday which is now the key early indicator of household spending and confidence.
