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LGT Navigator: Stock markets are looking nervously at bond yields and commodity prices

February 24, 2021

The scenario of a rapid and severe reflation of the global economy following the resolution of the corona crisis, coupled with higher interest rates and commodity prices, continues to cause nervousness on the stock markets. As a result, the top stocks in the technology sector have also recently come under pressure. Inflation concerns are also being exacerbated by stronger than expected rises in consumer prices, as the latest data from the eurozone show. Meanwhile, Federal Reserve Chairman Powell did not elaborate on the increased inflation expectations on financial markets during his report to the US Congress.

Stock markets are looking nervously at bond yields and commodity prices

Profit-taking against the backdrop of the current focus on inflation and interest rate concerns gave the hotly run technology stocks, which led the rally from the low point of the pandemic a year ago, a cooling at the beginning of the week. Thus, the Nasdaq 100 selection index slumped again in early trading by as much as -3.5%, but then managed to stem the losses by the close of trading and closed only slightly down -0.22% at 13'194.71 points. The Dow Jones Industrial again remained little changed not far from the highs and went out of the day's business at 31'537.35 points (+0.05%). The S&P 500 rose moderately by +0.13% to 3'881.37 points. At the same time, bond market yields stabilized at higher levels. The yield of the ten-year US government bond traded at just under 1.35%. Meanwhile, the oil price or copper extended the recent gains. On Asia's stock exchanges, the negative trend continued this morning and most of the indices record partly sharp reductions, such as in Hong Kong where the Hang Seng Index is around -3.5% in the red. Also for the European stock markets, the futures markets indicate losses at the start of trading.

Powell does not elaborate on increased inflation expectations

Federal Reserve Chairman Jerome Powell reiterated that the Fed will maintain its ultra-loose monetary policy for the time being. The Fed chief stressed that despite the economic recovery from the slump at the beginning of the corona crisis, the economic outlook remains very uncertain. Therefore, he said, the Fed will continue to stand ready to make full use of its entire monetary arsenal to support the economy. In his speech to the Finance Committee, however, Powell did not address the increased inflation expectations in financial markets, which have recently led to a significant rise in bond yields.

US consumer sentiment barometer brightens somewhat

Consumer confidence in the United States improved surprisingly significantly in February, according to data from the Conference Board, the New York-based economic research institute. The highly regarded sentiment barometer rose by 2.4 points to 91.3, while analysts had forecast a more moderate increase to 90.0.

Special effects increase inflationary pressure in the eurozone at the beginning of the year

In the euro area, consumer price inflation strengthened more strongly than expected in January. On an annual basis, the cost of living in the 17 euro countries increased by +0.9%. In December, the annual inflation rate was still negative at -0.3%. Compared with the previous month, consumer prices rose by +0.2%. Although energy prices declined by -4.2% year-on-year in January, the decline was less pronounced than in previous months. In the core rate, i.e. excluding energy and food prices, which are often susceptible to fluctuations, prices rose by +1.4% year-on-year, compared with core inflation of only +0.2% in December. This means that the inflation rate is still below the ECB's target of just under two percent, but the latest data are fueling the currently heightened inflation concerns. However, it should also be noted that special effects such as the expiry of the temporary VAT cut and the introduction of a CO2 levy in Germany distort the picture in the January data.

Germany's export prospects intact

According to the Munich-based Ifo economic research institute, sentiment in the German export industry improved noticeably in February. Accordingly, the Ifo index of export expectations improved to 10.7 points, reaching its highest level since September 2018. According to Ifo, the optimism is justified by the recovery of the Chinese economy and an upturn in production in the United States. The indicator is based on a monthly survey of 2,300 industrial companies in Germany.


Economic Indicators February 24

MEZ Country Indicator Last
08:00 GE GDP Q4 (q/q) +0.1%
08:45 FR Economic Survey (February) 98.0
16:00 US New Home Sales (January, m/m) +1.6%

Earnings Calendar February 24

Country Corporate Period
SZ Sulzer Q4
GE Puma Q4
FR Scor Q4
SP Iberdrola Q4
UK Lloyds Banking Q4
US Alcon Q4


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