Mark Lister, 8 March 2021

Sharp moves in bond yields continued to keep volatility high last week. The S&P 500 in the US was up 0.8%, although the Nasdaq fell 2.1%, its third weekly decline. Both indices are 2.4% and 10.8% below their respective highs.

European and Australian shares were up around 1%, while the FTSE 100 in the UK was a standout performer, gaining 2.3% for the week. The local NZX 50 fell 0.4%, its sixth consecutive weekly decline. The NZX 50 is now 10.2% below its January peak.

The US 10-year Treasury yield ended the week at 1.57%, compared with 1.41% a week earlier. It rose as high as 1.62% during the Friday trading session, the highest since February last year. This made for some big swings in equity markets, with the Dow Jones index trading in an 800 to 900 point range on Thursday and Friday.

subscribe banner

In the US, the latest COVID-19 stimulus package is on track for final congressional approval this week, and it’s difficult to predict how markets will react. It should be met with optimism because of the positive impact it will have on the economy, but whether that boosts equity markets could be determined by how the bond market reacts. Investors will also be watching the NFIB survey and the February CPI figures.

Thursday’s European Central Bank (ECB) meeting and the press conference from President Christine Lagarde will also be a highlight, with markets expecting some discussion on the recent rise in government bond yields, and whether the ECB will adjust its bond buying program to offset the tightening in financial conditions.

There could also be further developments on the reopening front. Scotland might ease restrictions earlier than expected, with infections falling and 30% of the population now vaccinated. England is also set to begin lifting its strict lockdown rules, while Texas (the second most populous US state) will allow businesses to open at 100% capacity from Wednesday.

Locally, on Tuesday at 1:00pm the flash ANZ Business Outlook survey for March is due for release. Last month we saw headline confidence soften slightly, although the Own Activity index remained very close to December levels, which were the strongest in more than three years. With the country having unexpectedly entered another partial lockdown earlier this month, we might well see sentiment take a hit this time around, particularly for those in Auckland and in sectors most impacted by the restrictions.

The February housing report from the REINZ should be released late this week. Last month’s report reflected ongoing strength across the market. National sales volumes were up 3.2% compared with the same month a year ago, making for the strongest January in five years. However, this was largely driven by a busy Auckland market, where volumes were up 37.6% on a year ago. In contrast, sales volumes outside of Auckland slipped 10.3%. The days to sell fell to 35 (in both Auckland as well as across the rest of the country), down from 42 and 43 respectively in January 2020. Prices continued to rise, with the nationwide house price index (HPI) up 1.3%, taking the annual gain to a healthy 19.2%.

The next round of US stimulus could be on the way over the next week or two, after Senate Democrats passed the long-awaited US$1.9 trillion COVID-19 relief package on Saturday. The plan was approved in a 50-49 party line vote, although one Democrat Senator (Joe Manchin from West Virginia) slowed the process down because he disagreed with the size of the package. Republicans also questioned the need for something as large as this, arguing the economy wasn't in bad enough shape to warrant it.