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First Plus Market Update 2H March 2021

2H March Global Market Recap

 

15th March 2021 – 31st March 2021

 

Global cases have reached 130 million on 31st March, according to data from Johns Hopkins University. The worldwide death toll has hit 2.83 million, and U.S. is leading all countries with death toll exceeding half a million.

The U.S. retail sales dropped by 2.7% in February amid the cold weather across the country. A rebound in retail sales is expected as government disburse new pandemic relief money to households as well as an acceleration in the rollout of vaccination. China's urban unemployment rate was reported to be 5.5% in February, 0.3% higher than that of January. The unemployment rate for the 25-59 age group was 4.9%, while for people aged between 16 and 24, the jobless rate was much higher at 13%, which implied that younger people in China struggled to find jobs. China’s industrial production increased by 35.1% in January to February, up from 7.3% in December, which was stronger than the medium forecast of 30%. Manufacturing production was 39.5% higher from a year earlier, and mining output increased by 17.5% on a year over year basis.

Stocks in China continued the selloff in the second half of March, as growing concern over liquidity tightening and possible asset bubbles replaced optimism about the economic recovery. All major indexes registered losses in the second half of March, with the CSI 300 Index losing 5.4%, ChiNext Index lowering 5.3% and Shenzhen Component Index down 5% month to date. The CSI 300 Index lost 15% from February’s peak and was the worst performing index among global major indexes month to date. Mutual funds in China were hit hard in March as most funds were invested into the same handful of stocks and faced with a faster pace of declines on the way down.

Fed Chair Jerome Powell pledged not to hike rate even if bond yields go up. U.S equities reached record highs on the last week of March. The S&P 500 rose 4.2%, Dow Jones Industrial Average increased by 6.6% and Nasdaq Composite Index increased 0.4% in March.

The 10-year U.S. treasury yield continues its rise in March, increasing by 33.55bps. In 2021 alone, the 10-year yield rose by 82.7bps as the market reflects rising expectations around inflation. Major countries’ 10-year government bond yields showed mix performances. The yield curve steepened for tenors longer than 2 years in the past three months while recent excess liquidity in the short-term lending market push tenors shorter than 1 year down in the past three months.

Overall, the credit market remains relatively stable and market sentiments remains positive as vaccination across countries continues. Borrowing costs increased for companies as investors demand higher returns to make up for the expected rise in inflation, as shown by the rise in the 10-year treasury rate. The recent fallout of Archegos Capital Management has caused Credit Suisse’s bonds to tumble, with estimated losses to run into billions. The Federal Reserve stressed that it has no plans to taper its $120 billion monthly bond purchase program. However, volatility in the credit markets could spike should the Fed pull back on efforts to support the economy. The People’s Bank of China (PBOC) is tightening scrutiny over Chinese bonds after a series of defaults late last year by top-rated Chinese companies, many of whom are backed by the government. The PBOC and several financial regulators are setting up a quality appraisal system with a default ratio at its centre.

The dollar index rose in March and has been rising since the start of the year as confidence in the recovery of the US economy builds up as the vaccine rollout continues. The Japanese Yen depreciated by 3.9% in March, hitting its weakest in about a year. The Chinese Yuan’s appreciation against the dollar has begun to taper after a strong rally from June to December 2020 and has depreciated in March.

Brent and WTI crude oil prices drop in March by 3.9% and 3.8% respectively as renewed lockdown measures in parts of Europe and signs that physical demand in China and US remained fragile increases worries over demand levels. Brent and WTI crude oil prices have hit a 12th month high in the middle of the month, with prices recovering back to pre-COVID levels. US Natural Gas drop by 5.1% while US Gasoline rose by 0.9%. Meanwhile, Bitcoin price hits an all-time high on 13th March at US$61,078 and rose 29.1% in the month as more and more institutions begin to adopt it, with many seeing it as an inflation hedge. The rise in commodities prices have begun to taper off after the surge across the board back in February.