Markets Update Monday 22/03/2021 – Stock Market Denials

Frankfurt – 22/03/2021

Stock Market Denials

At the beginning of the week, the drastic losses of the Turkish lira caused uncertainty among investors. In trading with the American dollar, the lira lost more than 15 per cent of its value at times. One dollar was traded for more than 7.93 lira at its peak, but the losses had eased somewhat by the early evening. Still, the lira has lost about 9 per cent since Friday. The currency slid after Turkish President Recep Tayyip Erdogan fired the head of the central bank for the third time since mid-2019 – apparently again in anger over rising interest rates. Fluctuations in the Turkish lira constitute a significant challenge for companies in the export business. What is clear here is that no monetary policy is possible in Turkey that is halfway stability-oriented.

Support for the stock market today came from the bond market where falling yields for US bonds. The easing in bond yields gave a boost to the recently battered technology stocks in particular. Investors again stocked up on US government bonds in the bond market and pushed the yield of the benchmark ten-year securities down to 1.68 per cent.

US Markets at a glance

Wall Street began the week with positives signs after initial weakness. 

The Dow Jones opened with a small loss but later turned positive and closed 0.32 per cent higher at 32,731.20 points. The NASDAQ Composite also gained considerably more. It extended its initial gain and ended the day 1.23 per cent higher at 13,377.54 points. The broader S&P500, which includes both technology stocks and blue chips, gained 0.7 per cent to 3,940 points. 

Tech stocks, in particular, benefited from the recent slight decline in bond yields. According to Dow Jones Newswires, due to their higher investment needs, which often involve borrowing, technology companies tend to react more sensitively to sharply fluctuating interest rates.

Far East Markets at a glance

No consistent trend was discernible on the Far East’s stock exchanges at the beginning of the week. The Japanese benchmark index Nikkei extended its losses from Friday at the start of the week and closed 2.07 per cent weaker at 29,174.15 points. On the Chinese mainland, however, the Shanghai Composite gained 1.14 per cent at 3,443.44 points. Meanwhile, the Hang Seng leading index in Hong Kong closed 0.36 per cent lower at 28,885.34 points.

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The Bank of Japan’s decision to widen its target yield range weighed heavily on the market. Investors interpreted this as a possible entry into an interest rate hike. Car and technology stocks mainly suffered from those market worries.

European Markets at a glance

The European stock exchanges fell slightly in Monday trading.

The EuroSTOXX 50 closed 0.08 per cent lower at 3,833.84 points. From today on, the Munich chip manufacturer Infineon shares will also be included in the EuroSTOXX 50.

The DAX defied the generally slightly negative trend in Europe and closed 0.25 per cent higher at 14,657.21 points. The TecDAX was able to make significant gains. It had hardly changed at the start and was up 1.02 per cent to 3,407.01 points by the end of trading.

Investors in Europe were watching the events in Turkey. After Turkish President Recep Tayyip Erdogan dismissed the central bank’s head, Naci Agbal, on Friday evening, the lira’s exchange rate plummeted. Also, several states are threatening to tighten restrictions in response to rising corona figures.

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But thanks to sharply falling US bond yields, most stock markets were able to largely shake off the worries about the sluggish vaccination campaigns in many European countries as well as the nervousness given the surprising dismissal of the Turkish central bank chief.

Forex, gold, oil and crypto

Apart from the strong turmoil on the foreign exchange market around the Turkish lira, the euro traded 0.3 per cent firmer against the greenback at 1.1938 US dollars in overall quiet trading. 

Market observers spoke of low momentum trading in the oil market. Prices for both Brent North Sea oil and American WTI light oil hardly moved. Brent fell by 5 cents to 64.48 US dollars, while West Texas Intermediate rose slightly to 61.50 US dollars.

The gold price recovered somewhat in the evening after initially falling and closed almost unchanged at 1,740 dollars per troy ounce.

Many of the most valuable digital assets came under pressure today, with Bitcoin and Ethereum losing around 5 per cent to $54,600 and $1,687, respectively. Meanwhile, XRP gained momentum after breaking the critical $0.50 resistance level the other day and increased by 9.6 per cent to $0.56. Another shooting star in the cryptocurrency space is Theta, which rose almost 50 per cent over the past seven days and rose 4 per cent today to currently $10.20. 

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Economic data

The eurozone’s current account surplus fell in January. According to the European Central Bank (ECB), it showed a seasonally adjusted positive balance of 30 billion euros (December: 37). The trade surplus increased to 39 (38) billion euros, with exports decreasing to 199 (200) billion euros and imports to 160 (161) billion euros. The balance of services was positive at 12 (11) billion euros.

The German Bundesbank expects a significant decline in the gross domestic product (GDP) for the first quarter due to the lockdown’s tightening. Its current monthly report also writes that inflation measured by the Harmonised Index of Consumer Prices (HICP) could rise to well over 3 per cent towards the end of the year.

In the fourth quarter, GDP had still risen by 0.3 per cent because the industry absorbed losses in the service sector’s activity. This is no longer expected for the first quarter, also due to special factors.

Concerning the inflation trend, the Bundesbank is relatively relaxed. The impact of the lower weighting of package tour prices in the HICP will not play a role on average for the year, it said, but inflation is likely to pick up in the next few months due to higher crude oil prices.

“In the second half of the year, high HICP rates are then to be expected temporarily due to the base effect of the VAT cut in the previous year – from today’s perspective, they could significantly exceed 3 per cent at times by the end of the year,” the Bundesbank calculates.

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