Markets Update Friday 26/02/2021 – Puzzle Pieces

Frankfurt – 26/02/2021

Puzzle Pieces

The stock markets have had a week full of ups and downs. 

Rising yields on the US bond market already drove prices on the US stock exchanges into the red the previous day. Now the sentiment became more noticeable on other international stock markets. Central banks argue that higher interest rates are an expression of brightening economic prospects, but on the other hand, market observers explain that some stocks are very highly valued. Therefore, the opportunity is currently being taken to realise further profits and put them into other investments and asset classes.

Greece’s central bank chief Yannis Stournaras is calling for more pace in the European Central Bank’s bond purchases (ECB) in light of the recent rise in government bond yields. “From my point of view, there is an undesirable tightening of bond yields,” the ECB Governing Council member told Reuters news agency. “Therefore, it might be desirable to increase the pace of PEPP purchases to ensure favourable financing conditions during the pandemic,” he said. The trillion-dollar PEPP bond-buying programme is currently the ECB’s primary weapon to combat the pandemic’s economic fallout.

In recent days, the rise in capital market interest rates had also prompted US Federal Reserve Chairman Jerome Powell to stress that the central bank intends to continue its ultra-loose monetary policy for a long time. The rapid rise in interest rates on government bonds in recent days had come to a halt for the time being on Friday.

US Markets at a glance

Wall Street investors shifted their focus increasingly on technology stocks during the day. The Dow Jones ended the day 1.50 per cent lower at 30,932.37 points. It had started the day virtually unchanged at 31,401.29 points, but then it moved sharply lower. The NASDAQ Composite was able to gain 0.56 per cent to 13,192.34 points at the end of trading. 

After the US markets had taken a deep dive on Thursday, tech stocks at least managed to stabilise on Friday. Inflation concerns, which were also responsible for the previous sell-off, remained prevalent among blue chips. The rise in US bond yields came to a halt for the time being before the weekend, but investors still seemed to be dominated by the concerns it had triggered earlier.

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Far East Markets at a glance

The Asian stock exchanges trended downwards before the weekend.

By the close of trading, the Japanese benchmark index Nikkei had lost a whopping 3.99 per cent to 28,966.01 points, while the Shanghai Composite index on the Chinese mainland fell by 2.12 per cent to 3,509.08 points. In Hong Kong, the Hang Seng lost 3.64 per cent to 28,980.21 points.

Once again, bond yields in the USA rose sharply, and the US stock markets reacted to this with losses, which then also spread to the Asian and European stock markets. In Shanghai, the US dollar’s drastic appreciation against the won had an additional negative impact, market participants explained. It prompted foreign investors to withdraw from the emerging markets.

European Markets at a glance

The European stock exchanges fell sharply again in Friday trading. The EuroSTOXX 50 already showed a significant minus at the sound of the starting bell. It then retained its negative sign and went into the weekend 1.51 per cent lower at 3,629.71 points.

The German stock market also fell significantly again today. The DAX, Germany’s leading index, ended the day 0.67 per cent lower at 13,786.29 points. Over the week, the DAX has thus lost 1.5 per cent. The TecDAX also started the day already lower, closing 0.65 per cent lower at 3,346.40 index units. 

The bad mood from the USA also spilt over to the European markets. Investors remain concerned about rising bond yields, which make equities a less attractive investment. Accordingly, Wall Street closed in the red on the previous evening. The ECB’s announcement that it would not set yield targets for government bonds, as the Japanese central bank does, had a slightly calming effect.

Forex, gold, oil and crypto

On the foreign exchange market, the US dollar rose sharply today, putting some currencies under heavy pressure. Shortly before the weekend, the US currency gained in trading with all other major currencies. As the world’s reserve currency, the dollar benefited from a gloomy mood on the stock markets, triggered by higher capital market interest rates in the US. The background is rising growth and inflation prospects in the United States due to the trillion-dollar stimulus programme targeted by the government. For example, the euro fell to 1.2081 US dollars, and the Australian dollar fell drastically from 0.80 US dollars to 0.7706 US dollars in the past two trading days. The British pound also decreased significantly and is currently trading at $1.3930.

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Oil prices fell on Friday, weighed down by a higher dollar exchange rate as well. On Thursday, prices had risen to their highest level in a year. Brent oil cost 70 cents less today at 66.18 US dollars per barrel. The price for American crude oil (WTI) even fell by 1.07 dollars to 62.45 US dollars.

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The strengthening greenback also weighed heavily on the gold price. The precious yellow metal dropped as low as $1,717 and closed at $1,734 per troy ounce.

Digital assets remain under pressure and are currently looking for direction. Bitcoin lost 4.3 per cent today to $46,600, and most of the market followed suit. Only Cardano withstands the current prevailing direction and continues to appreciate. The Ethereum challenger gained 11.2 per cent on the day and is now trading at $1.27, getting closer to its previous all-time high at $1.33. Ethereum lost 6.6 per cent to $1,456 while XRP fell 6 per cent to $0.4290. 

Corporate and world economic news

Economic data

Import prices in Germany rose much more than expected in January. As reported by the Federal Statistical Office (Destatis), the import prices index increased by 1.9 per cent compared to the previous month. This is the highest monthly increase since December 2010. Economists surveyed by Dow Jones Newswires had forecast a rise of only 0.9 per cent.

Industrial production in Japan rose for the first time in three months. It rose by 4.2 per cent in January, according to government data released on Friday. The month before, production had fallen by 1 per cent. The new increase was due to a pick-up in global demand, according to the data. Analysts had expected an average gain of 4 per cent, according to a Reuters poll. For February, manufacturers surveyed by the Commerce Department expect a 2.1 per cent increase.

Consumer spending in the USA rose as expected in January. According to the Commerce Department, it increased by 2.4 per cent over the previous month, after a revised 0.4 (preliminary: 0.2) per cent decline in December. Economists surveyed by Dow Jones Newswires had expected a 2.5 per cent increase. For incomes, the ministry reported a rise of 10.0 per cent. 

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US consumer sentiment deteriorated as expected in February, with a further rise in short-term inflation expectations. The University of Michigan’s index of US consumer sentiment fell to 76.8 in the month-end survey from 79.0 at the end of January. Economists surveyed by Dow Jones Newswires had expected a reading of 76.8.

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