22 March 2021

US Stocks End Mixed Despite Lower Treasury Yields

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News shaping
the markets today

     

What’s happening: US stocks closed mixed on Friday, despite government bond yields retreating from their recent highs.

What happened: The Nasdaq 100 traded higher on Friday, with growth stocks outperforming value stocks on optimism around the economy rebounding steadily from the covid-19 pandemic.

The Dow Jones index recorded losses, however, following the Federal Reserve’s decision to not extend its capital break for big banks.

Why it matters: The US 10-year Treasury notes started the year with yields below 1%. However, the benchmark rate has been on an uptrend over the past seven weeks on inflationary concerns. The surge in Treasury yields took a breather on Friday, while remaining at 14-month highs of 1.742%.

The recent approval of the $1.9 trillion fiscal stimulus package, along with the Fed’s assurance to keep interest rates at record lows till 2023, lifted economy-linked stocks and drove the Dow Jones index and S&P 500 to new highs earlier last week.

However, the Nasdaq 100 index continues to trade around 6% below its record closing high reached on February 12, with tech and growth stocks losing favour among investors with rising government bond yields.

The Dow Jones index and S&P 500 began trading on Friday on a positive note, driven by energy stocks. However, the indices pared gains as the day progressed, after the Federal Reserve decided against extending the pandemic-led capital break for big banks, which is set to expire at the end of the month. Banking stocks recorded losses following the central bank’s announcement, dragging both the Dow and S&P 500.

The 30-stock Dow lost 234.33 points to settle at 32,627.97 on Friday, following a steep decline in the shares of Visa and JPMorgan. The S&P 500 slipped 0.1% to 3,913.10. The Nasdaq 100 bucked the trend and rose 0.61% to 12,866.99, as investors added tech shares to their portfolios. Facebook’s stock gained over 4%, while Amazon and Netflix added around 1.5% each.

Wall Street recorded losses last week, with the Dow and S&P 500 losing 0.5% and 0.8%, respectively, ending their two-week winning streak. The tech-laden Nasdaq 100 also fell 0.8% for the week, recording a decline for four weeks in the past five weeks.

What to watch: Markets will keep an eye on the Fed’s announcements related to changes in its SLR (supplementary leverage ratio) for banks, following the end of the capital break.

Investors also await economic data on Chicago Fed National Activity Index and existing home sales from the US. The Chicago Fed National Activity Index is expected to rise to 0.78 in February, from a reading of 0.66 in January. Sales of previously owned houses, which rose 0.6% to 6.69 million units in January, are expected to decline 3% in February.

The Markets Today

     

Crude oil will be in focus today, after recovering slightly on Friday.

Context: Oil prices traded higher on Friday, following a massive downturn the previous day. Oil prices came under pressure with a new wave of covid-19 cases across Europe resulting in renewed lockdown restrictions.

Details: Crude oil settled lower by around 7% on Thursday, after various European nations announced fresh restrictions, a slowdown in the rollout of vaccines due to supply issues and concerns around side effects of the AstraZeneca vaccine.

Investors breathed a sigh of relief as certain European countries, including Germany and France, resumed inoculations with the AstraZeneca vaccine after the EMA (European Medicines Agency) vouched for the safety of the vaccine.

However, markets remained concerned about a slowdown in the vaccine drive in the EU and UK next month due to supply concerns.

Germany is expected to extend its lockdown restrictions into a fifth month in a bid to contain the further spread of covid-19 infections.

“Concerns are rapidly growing of a mobility-depressing third wave in Europe amid a pause in vaccinations and rapid spread of the B117 mutation that originated in the UK,” JPMorgan analysts said in a note. However, analysts still expect Brent to average above $70 per barrel in the fourth quarter.

Goldman Sachs also projected a sharp rise in global oil demand in the upcoming quarter, with Brent likely to increase to $80 per barrel during the summer months.

Oil prices were also buoyed by reports of a drone attack on an oil facility in Saudi Arabia. US crude oil for April delivery gained $1.42 to close at $61.42 per barrel on Friday, while Brent crude oil for May delivery added $1.25 to reach $64.53 a barrel.

What to watch: Markets await data on crude inventories from the API and EIA, scheduled to be released on Tuesday and Wednesday, respectively.

Rising covid-19 cases remain one of the top concerns for markets, with total infections surging to 123.1 million globally.

Other Markets: European trading indices closed lower on Friday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 down by 1.05%, 1.05%, 1.07% and 0.76%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s tourist arrivals and government debt, Eurozone’s current account, South Africa's SACCI business confidence index, Italy’s current account as well as the Central Bank of Brazil’s focus market readout.

 

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