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Archinomics Weekly - Monday 22nd February 2021

5 days ago

the
MARKETS

Equities

US equity markets were mixed, the Dow Jones touching an all-time high, while the Nasdaq saw some profit taking. European markets largely showed a firmer trend. Asian markets saw strength in China and Japan, where the Nikkei index reached levels not seen for 30 years. Emerging markets were mixed, with the best performance from commodity driven economies.

Bonds

Government bonds were rattled by fears of rising inflation, leading to further steepening of the US yield curve, as longer dated bond yields rose faster than yields on short dated bonds. Credit markets also saw weakness, although high yield markets were little changed. Emerging market debt spreads widened modestly last week to 345 bps over US Treasuries.

Currencies

Sterling saw further strength, while the yen fell against all majors. The cross rate between the dollar and the euro was unchanged.

Commodities

Oil continued to rally, on expectations of a post-pandemic demand boost. Industrial metals had a very strong week, further boosting talk of a ‘commodity supercycle’.

Responsible investing

US Federal Reserve Governor Lael Brainard gave her support to mandatory climate disclosure in company reports, as ESG reporting gains prominence under President Biden.

MACROECONOMIC
UPDATE

The minutes from the January meeting of the US Federal Reserve indicated debate as to the likelihood of an inflation surge. Meanwhile US retail sales jumped sharply in January, as Covid-19 recovery payments were made to middle income households.


Japan’s Q4 GDP growth was faster than expected at 3%, as the economy continued to benefit from the ‘Zoom boom’ in demand for goods such as consumer electronics.


China’s Lunar New Year holiday saw a 29% surge in retail and catering spending, which gave a boost to equity markets before the People’s Bank of China acted to remove $40bn of liquidity from the interbank system.

on the
RADAR

US PCE inflation is forecast to dip to 1.3% in January, still some way short of the Federal Reserve’s target of 2%.


The German IFO business climate index for February is expected to come in at 91.8, after 90.1 in January.

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