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LGT Navigator: Declining corona case numbers in the US and falling yields give stocks a break

March 23, 2021

A certain easing of tensions and a slight decline in bond yields gave stock markets a friendly start to the week. Positive factors were also declining Covid-19 infection figures and faster than expected progress in the vaccination campaign in the US. At the same time, however, increasing geopolitical tensions could dampen the mood on the financial markets.

Declining corona case numbers in the US and falling yields give stocks a break

Falling yields on US government bonds and declining coronavirus case numbers in the United States provided relief on the New York Stock Exchange at the beginning of the week. The Dow Jones Industrial came under pressure at the start of trading, but then closed +0.32% higher at 32'731.20 points. The S&P 500 and the Nasdaq 100 rose simultaneously by +0.7% to 3'940.59 points. Stronger gains showed on Monday the technology exchange Nasdaq. Thus, the selection index Nasdaq 100 increased by +1.71% to 13'086.51 points. A positive effect on the mood on the stock exchange floor had on the one hand a decline in yields on the US bond market, where the yield of the trend-setting ten-year government bonds slipped back below the mark of 1.7%. Also providing relief was a decline in new Covid-19 infections in the United States and the progress of the vaccination campaign. More than 100 million vaccine doses have now been administered in the US since President Joe Biden took office in January - a target set by the new administration for the end of April.

In Asia, however, most stock indices this morning could not follow the positive guidance from Wall Street and are mostly trading in the red. In today's focus: Fed Chairman Jerome Powell and US Treasury Secretary Janet Yellen will answer questions from the House Financial Services Committee. According to the text of the speech, which is already available, Powell will emphasize that the economic recovery is gaining momentum, but is still far from complete.

Potential for geopolitical tensions – China and Russia strengthen strategic cooperation

In view of the latest tensions between the US and China, the People's Republic wants to strengthen its strategic partnership with Russia. To this end, Russia's Foreign Minister Sergei Lavrov and his Chinese counterpart Wang Yi met. The visit, scheduled for two days, comes just days after a contentious meeting between Wang Yi and new US Secretary of State Antony Blinken. Considering the West's sanctions against Russia, the Russian foreign minister said the two countries need to become more independent in international trade, for example by offering alternatives to the US dollar as a means of payment or the Swift payment system.

Turkish financial markets in turmoil

The dismissal of the head of the central bank by President Recep Tayyip Erdogan caused strong reactions on the stock market as well as in the national currency in Turkey. The Turkish lira lost more than -15% at times, trading just above the record low of 8.57 lira for one US dollar recorded in November 2020. The Turkish stock index BIST National 100 also slumped in places by almost -10% and Turkish government bonds were also under pressure. The yield on ten-year government bonds reached a record high above the 17% mark. Erdogan's direct intervention in central bank policy followed last week's surprisingly sharp 200 basis point rate hike to 19%.

Subdued US economic data

The monthly published Chicago Fed National Activity Index (CFNAI) weakened in February for the first time since April last year. The indicator fell from +0.75 points in January to -1.09 points, while analysts had expected only a moderate decline to -0.66 points. The more meaningful three-month moving average thus deteriorated to -0.02 in February from +0.46 at the beginning of the year. At zero points, the CFNAI signals economic growth at historical trend levels. With a negative value, the indicator points to expansion below the historical trend level, or with a positive value to growth above it. The US real estate market also sent out a negative signal. Thus, the number of homes sold declined in February, at least from a relatively high level. Sales of existing homes fell by -6.6% compared with the previous month. Analysts had expected a decline of -2.9%. Overall, however, the situation in the housing market remains robust, according to the National Association of Realtors (NAR).

Bundesbank expects sharp drop in GDP in first quarter

In its monthly report published yesterday, the German Bundesbank points to the negative economic consequences of the ongoing lockdown and therefore expects a decline in economic output in the first quarter. The Federal Statistical Office will publish an initial estimate of this on April 30. According to the central bank's assessment, the services sector is particularly suffering badly from the corona restrictions, while German industry is supporting economic development thanks to dynamic foreign demand.


Economic Indicators March 23

MEZ Country Indicator Last
08:00 UK Unemployment Rate 5.1%
10:00 IT Industrial Orders (January, y/y) +7.0%
15:00 US New Home Sales (February, m/m) +4.3%

Earnings Calendr March 23

Country Corporate Period
US Adobe Q1


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