2H February Global Market Recap
16th February 2021 – 28th February 2021
U.S. latest data shows that both consumer and manufacturing spending are off to a strong start to 2021. U.S. retail sales rose 5.1% in January, far exceeding the expectation of 1.2% growth, with every major category growing. U.S. durable goods sales increased 3.4% from January, the biggest growth in six months and well above the forecast of 1.1%. The 5-year breakeven inflation rate exceeded 2.5% for the first time since 2008, amid expectations of a successful rollout of coronavirus vaccinations and a U.S. stimulus package. Investors await to see if Federal Reserve Chair Jerome Powell will address concerns about the rising rates and the risks in financial markets.
China’s official manufacturing PMI index dropped to 50.6 in February from 51.3 last month, according to National Bureau of Statistics (NBS). The data shows that China’s manufacturing activity expanded at a lower-than-expected rate than a month earlier, the lowest level since May 2020.
Global stocks tumbled in the last week of February as selloff in global bonds deepened and concerns mount about the implications of tighter financial conditions on global asset. ChiNext Index plunged 11.3%, leading the loss globally and the index was down 1.8% year to date. Shenzhen Component index and CSI 300 Index dropped 8.3% and 7.6% respectively. Concerns are growing that central banks will unwind accommodative monetary policies that have supported the unprecedented rally last year. Investors are rotating out of consumer, new energy and tech shares due to valuation concerns, and adding positions in undervalued cyclical stocks.
The 10-year U.S. treasury yield rose significantly in February, increasing by 33.94bps, the highest monthly climb since the dip back in March 2020. The market is reflecting expectations for incrementally tighter central-bank policy and greater future uncertainty around rate increases and inflation. China interbank rates continue to fall as investors ease concern over liquidity. On the back of the rise in the 10-year U.S. treasury rate, major countries’ 10-year government bond yields rose as well.
Across the board, most major CDS indices drop in February and have recovered back to pre-COVID levels as the global economy continues to recover from the pandemic. Major OAS indexes fell as well while the USD 3M Libor continues to drop further. The LIBOR-OIS spread continue to tighten with the drop in Libor.
The dollar index remains relatively stable in February and is slowly inching up since the start of the year. Most major international currencies weakened against the dollar. British pound continues to strengthen against the USD in February and hit a 2.5 year high against the dollar as investors expect the rapid vaccination program would help Britain recover from its biggest economical drop.
As vaccination continues to ramp up across countries, Brent and WTI crude oil prices continue to rise in February, increasing by 18.3% and 17.8% respectively as the demand for oil recovers and the continued commitment by producers to hold back on supply. US Natural Gas and Gasoline price rose by 8.4% and 17.9% respectively as well. Meanwhile, Bitcoin price hit an all-time high on 21st February at US$57,355 and plunged 21% since its peak as U.S. Treasury Secretary Janet Yellen and Tesla CEO Elon Musk weighed in on the cryptocurrency’s recent rally. The recent surge in commodities price across the board is mostly due to investors’ expectation that inflation will start to rise, leading to the weakening of the dollar and hence, boosting commodities prices.