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LGT Navigator: Bond markets keep a firm grip on stocks

March 22, 2021

The rise in yields on the bond markets, fueled by heightened inflation concerns, continues to dominate sentiment on the stock markets. In addition, political tensions between China and the US also weighed on investor confidence. Meanwhile, equity markets can continue to rely on the support of the major central banks, although some central banks have already come under pressure and raised their key interest rates. After the interest rate step of the Turkish central bank, the dismissal of the central bank chief caused unrest especially in the foreign exchange market. 

Bond markets keep a firm grip on stocks

The Dow Jones Industrial extended its previous day's losses on Friday and went into the weekend with a daily loss of -0.71% at 32'627.97 points. On a weekly basis, this resulted in a loss of almost half a percentage point. The market-wide S&P 500 closed on Friday almost unchanged from the previous day at 3'913.10 points (-0.06%), while the indices on the technology exchange recovered somewhat from recent heavy losses. The Nasdaq 100 gained +0.61% to 12'866.99 points. In Europe, the EuroStoxx 50 ended the week on Friday with a minus of -0.79% at 3'837.02 points. In Asia, most stock indices at the beginning of the week followed the negative lead from overseas and for European stock markets the futures also indicate slight losses.

The yield of the ten-year US government bonds slightly weakened to 1.67% at the start of the week. Before the weekend, the benchmark had reached levels of around 1.72%, after the Federal Reserve (Fed) surprisingly announced to let a support measure taken during the corona crisis expire. The measure is an exception to the SLR capital rule. The rule stipulates how much equity capital banks must hold on their books for various assets to offset possible losses. As a result, prices on the US bond market fell noticeably and yields rose in return, out of concern that demand for government securities could now decline.

Russia's central bank raises key interest rate

Russia's central bank raised its key interest rate by 25 basis points to 4.5% for the first time since 2018 as it battles rising inflation. The move makes the Bank of Russia the third central bank to tighten its key rate in the past week, following Brazil's and Turkey's central banks. In addition, the Russian central bank also holds out the prospect of further interest rate hikes.

Turkish central bank remains under control of President Erdogan

For the second time in just a few months, Turkish President Recep Tayyip Erdogan has ousted acting central bank chief Naci Agbal. The announcement came as a surprise on Saturday, without explanation, after the central bank raised its key interest rate late last week. The new central bank chief will be Sahap Kavcioglu, a former member of parliament from Erdogan's ruling AKP party and an economics columnist for the pro-government newspaper Yeni Safak. As a result, the Turkish lira plummeted by up to -17% against the US dollar in Asian trading today.

German producer prices fuel inflation

Producer prices in Germany rose noticeably in February. On a monthly basis, producer prices increased by +0.7% and by +1.9% year-on-year. Prices of intermediate goods in particular rose, with the strongest price increase observed since November 2017. Producer prices sooner or later pass through to consumer prices and usually provide an early indication of inflation developments.

Continued deflationary trends in Japan

In Japan, consumer prices fell for the seventh consecutive month in February. Despite the central bank's extremely loose monetary policy, prices fell by -0.4% year-on-year. However, at least the momentum seems to be slowing somewhat, as consumer prices had fallen even more sharply in January and December, by -0.6% and -1.0% respectively. Japan's central bank announced at the end of last week that it would make its ultra-expansionary policy even more flexible in the future in order to gain more room for maneuver in supporting the economy, which has been burdened by the pandemic, and in combating deflationary tendencies. 

M&A business remains relatively stable during the corona crisis

During the corona pandemic, although the total volume of corporate mergers and acquisitions declined by -15% to USD 2.8 trillion, the M&A business proved to be more crisis-resistant and stable than anticipated, writes management consulting firm Bain & Co. This trend is likely to continue in the current year, especially since the corona crisis is accelerating existing trends such as digitalization and regionalization. The focus here is also primarily on the financial sector, commented Bain & Co.

 

Economic Indicators March 22

MEZ Country Indicator Last
12:00 GE Bundesbank Monthly Report
13:30 US Fed Chicago National Activity Index (February) +0.66
15:00 US Existing Home Sales (February, m/m) +0.6%

Earnings Calendr March 22

Country Corporate Period
GE Deutsche Post Sustainability Plan

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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