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LGT Navigator: Rise in yields puts renewed pressure on stock prices

March 19, 2021

The prospect of a continued expansionary monetary policy by the Fed, ECB, Bank of Japan and the Bank of England initially prompted positive reactions on the stock exchanges and even set new records in some cases, but also rekindled fears of inflation and caused yields on the bond market to rise. Once again, technology stocks felt the immediate impact. While the four major central banks confirmed their expansionary stance, other central banks, such as Norway's central bank, are already signaling a foreseeable end to their ultra-loose monetary policy or, as in the case of the Brazilian and Turkish central banks, are already having to tighten interest rates.

Higher yields are putting pressure on share prices again

The renewed rise in yields on the bond market put again pressure on share prices on Thursday. In the wake of the US Federal Reserve decision, the yields on ten-year US government bonds climbed yesterday to 1.75%. This was felt particularly by the technology sector. On the technology exchange Nasdaq losses of around -3% were quoted, while the Dow Jones Industrial and the market-wide S&P 500 could keep their daily losses within limits. The Dow closed -0.46% lower at 32'862.30 points after a new record attempt and the S&P 500 lost -1.48% to 3'915.46 points.

Bank of Japan expands its room for maneuver

The Japanese central bank confirmed its previous monetary policy course and left the key interest rate unchanged at -0.1%, but the Bank of Japan will make its policy even more flexible in the future and for this purpose will expand the fluctuation margin for long-term government bonds to plus and minus 0.25%. Overall, the central bank will thus be able to tolerate a wider fluctuation margin for long-term interest rates and will give itself more leeway to lead the economy out of the corona crisis.

Bank of England maintains its expansionary course

The Bank of England unanimously confirmed its monetary policy stance and left its key interest rate unchanged at the record low of +0.1%. The bond-buying program was also left at the previous level of GBP 895bn. This decision was expected on the capital market. As long as there are no clear indications that significant progress was being made toward achieving the inflation target of 2% on a sustainable basis, a tightening of monetary policy was not to be expected, commented the BoE. Analogous to his US counterpart Jerome Powell, UK central bank governor Andrew Bailey also did not specifically address the recent rise in capital market rates.

ECB willing to prevent a premature rise in government bond yields

According to central bank President Christine Lagarde, the ECB will prevent a premature rise in government bond yields with increased bond purchases under the Pandemic Purchase Program (PEPP). Speaking at the regular hearing before the European Parliament's Economic and Monetary Affairs Committee, Lagarde stressed that the ECB considers a rise in yields in the second half of 2021 at the earliest. “A rise in yields before then would be undesirable,” she said.

Norges Bank considers earlier rate tightening

Norway's central bank is leaving its key interest rate at zero percent for now but is considering raising rates later this year, despite ongoing uncertainties about how the corona pandemic will develop. An initial rate tightening is conceivable in the second half of 2021, Norges Bank commented. Previously, the central bank had assumed a first hike only in early 2022. The Norwegian krone reacted with significant price gains to the prospect of a tighter stance.

Turkish central bank surprises with sharp interest rate hike

Turkey's central bank unexpectedly raised its key interest rate by two percentage points to +19%. Analysts had expected an increase of 100 basis points. The central bank pointed to upside risks to inflation. In February, the annual inflation rate in Turkey rose to over 15% and the Turkish lira had come under pressure.

Latest US economic data show light and shadow

The monthly leading indicator compiled by the New York-based economic research bureau The Conference Board disappointed with a lower-than-expected increase of +0.2% month-on-month (consensus +0.3%). In January, the “Leading Indicator” had still risen by +0.5%. The composite index, which is made up of ten indicators, gives an indication of the development of the US economy on a three- to six-month horizon. In contrast, the Philadelphia Fed's industrial barometer sent a strong signal. In March, the so-called Philly Fed Index showed the highest value in almost 50 years. The indicator rose much more strongly than expected from 23.1 points in the previous month to 51.8 points. On the other hand, the fact that the weekly reported initial claims for unemployment benefits increased by 45'000 to 770'000, contrary to expectations, is less good news. According to the US Department of Labor, 4.12 million Americans are currently claiming unemployment benefits.

 

Economic Indicators March 19

MEZ Country Indicator Last
03:30 JP Bank of Japan Press Conference
08:00 GE Producer Prices (February, y/y) +0.9%
11:30 RUS Central Bank Monetary Policy Decision

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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