1H February Global Market Recap
1st February 2021 – 15th February 2021
The U.S. non-farm payrolls fell short of expectations for a second month in January, with 49,000 new jobs added and missed the consensus forecast of 50,000 job gains. The U.S. lost 9.3 million jobs in 2020, and nearly 40% of the unemployed people were out of work for 27 weeks or more. According to Treasury Secretary Janet Yellen, the U.S. can return to full employment in 2022 if it enacts a robust enough coronavirus stimulus package or it could take until 2025 for the U.S. labor market to recover without adequate support.
Headline CPI rose 1.4% in January, slightly higher than last month’s 1.36% and below economists’ forecast of 1.5%. The 5-year and 10-year breakeven inflation rates, which measures the market's inflation expectations, have been increasing continuously and hit their highest levels since 2014. Rising inflation expectations have driven the benchmark U.S.10-year Treasury yield higher in recent weeks, prompting a pullback for the surging stock market.
China’s YoY CPI declined 0.3% in January, missing the forecast of a 0% increase which is largely due to the different base of comparison, as the Lunar New Year fell in January last year compared to February this year. Market consensus thinks that the weaker than expected inflation gauge does not imply any deflation risks and the government is expected to maintain its policy stance.
U.S stocks rose for six consecutive trading sessions with the S&P 500 index reaching an all-time high before pulling back some of the earlier gains in the second week of February. Optimism was spurred by fresh signs that the Biden administration is committed to passing a sizable aid bill to address unemployment. Rising inflation expectations have raised concerns about whether unprecedented levels of stimulus from central banks could be unwound earlier than expected.
China mainland stock indexes were top gainers in the first half of February, with ChinNext and CSI Index up 9.1% and 8.5% respectively. Hang Sang Index increased 6.2% in the first half of February and 10.3% year to date. Cash is pouring into Hong Kong’s IPOs at a record pace, amid spiked interests in hot new offerings from the likes of Kuaishou.
The 10-year U.S. treasury yield continues to rise in the first half of February, increasing by 14.27bps as the US government bond selloff continues with the House of Representatives aiming to vote on 26th February on President Biden’s US$1.9 trillion stimulus plan. China interbank rates fall as signs of liquidity tension in the market starts to fade. On the back of the rise in the 10-year U.S. treasury rate, major countries’ 10-year government bond yields rose as well. Notable movements were spotted from Germany, Thailand, and Australia 10-year yields.
Overall, the credit market remained relatively stable and market sentiments remains positive as vaccination across countries continues. Across the board, most major CDS indices drop in the first half of February as markets anticipates the upcoming US$1.9 trillion stimulus package by the new Biden administration. Most CDS spreads have recovered back to pre-COVID levels as the global economy continues to recover.
The dollar index remains relatively stable in the first half of February. The Chinese Yuan’s appreciation against the dollar has begun to taper after a strong rally from June to December 2020. British pound hits a 2.5 year high against the dollar as investors expect the rapid vaccination program would help Britain recover from its biggest economical drop in 300 years. The AUD hit a 3 year high against the dollar as rising Australian government bonds and rise in commodity prices increases demand for the currency.
As vaccination ramps up across countries, Brent and WTI crude oil prices continue to rise in February, increasing by 13.3% and 13.9% respectively as the demand for oil recovers and the continued commitment by producers to hold back on supply. Brent and WTI crude oil prices have hit a 13th month high, with prices recovering back to pre-COVID levels. US Natural Gas and Gasoline price rose by 11% and 9% respectively as well. Meanwhile, Bitcoin price hits an all-time high on 15th February at US$48,204 after rising 39.2% and a major reason for the massive spike in price is due to the huge purchases from large-scale institutions. Tesla invested $1.5 billion in Bitcoin and signaled its intent to begin accepting the cryptocurrency as a form of payment.