Mark Lister, 22 March 2021

Markets were mixed last week, as volatility remained high against the backdrop of steadily increasing bond yields. The S&P 500 hit a fresh all-time high early in the week, but ultimately finished 0.8% lower. The tech-heavy Nasdaq was down by a similar degree and remains 6.2% below its peak from last month.

The FTSE 100 in the UK also fell 0.8%, although the European Stoxx 600 managed to eke out a marginal gain of 0.1% for the week. European shares have performed well in 2021, outpacing most other markets with a 6.1% gain so far.

The ASX 200 in Australia was down 0.9% last week, while the local NZX 50 bucked the trend and rose 0.7%. The interest rate sensitive NZX 50 has been a laggard in 2021. It has fallen 4.4% this year and is 7.7% below its January peak.

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The US 10-year Treasury yield continued to rise, ending the week at 1.72%, the highest in more than a year. While this is low by historic standards, at the beginning of the year it was 0.92% and in August last year it fell to a record low of 0.50%. It has been the speed of the move in that has been most disconcerting for markets.

The key economic release this week will be the flash PMIs for March, which will provide a timely update on economic activity in some of the world's biggest economies. The core PCE will also be watched closely in the US on Friday. Fed Chair Jerome Powell testifies before Congress twice, while about a dozen other Fed speeches are scheduled to take place over the coming five days.

Late in the week, European Union (EU) leaders will gather in Brussels for a summit, where the uneven pace of the vaccine rollout is set to be a key topic. Many EU countries are lagging the UK and the US in this regard, and a number suspending usage of the AstraZeneca vaccine following reports of blood clots.

Locally, a housing policy update will be in focus, while earnings releases from some of the major listed retailers will shed some light on the outlook for the sector. On the international corporate front, Adobe, KB Home and Tencent are all due to report results, as is the recent fan favourite of small US investors, GameStop.

The Government is expected to make an announcement this week on changes to housing policy, in the wake of a rampant property market and increasing concern over the sustainability of rising prices. Minister of Finance Grant Robertson has been quoted as saying the package will include a mixture of incentives to invest elsewhere, as well as disincentives to continue investing in housing. The Prime Minister has also noted the Government wants to encourage people to look at alternative investments that contribute to our productive economy. Potential changes include an extension of the bright line test from five to ten years, some form of tax on unused land, the introduction of debt-to-income ratios, and some supply-side solutions, among other things.

Flash PMIs for March will be released the week, covering a range of economies including those of Australia, Japan, Europe, the UK and the US. A month ago, these same indicators pointed to a strong US economy and improving conditions in Europe. The US Composite PMI rose to 58.8, the highest in almost six years. The service sector was strong, driven by an easing of restrictions and strength among domestic customers. The European Composite PMI was lacklustre at 48.1, although a weak service sector was offset by faster manufacturing growth, led by Germany. The flash manufacturing PMI for Europe rose to a three-year high of 57.7. Business expectations also improved to the highest in nearly three years, as firms were upbeat about the prospect of vaccine rollouts leading to an easing of restrictions.