Market Analysis 17-Mar-21
US Treasury yields did not change much yesterday and are at 1.63% for ten-year securities. US stock indexes were adjusted - the Dow Jones fell by 0.4%, the S&P500 fell by 0.16%, while the NASDAQ rose slightly by less than 0.1%.
Markets are taking a wait-and-see attitude ahead of the outcome of the US Federal Reserve meeting. The US regulator will not agree to changes in monetary policy, so the focus will be on the Fed's comments on rising yields and inflation expectations. So, a survey from Bank of America showed that for the first time since February 2020, the coronavirus has given way to the role of the main market risk. Today, the main concerns for the market are inflation and rising yields. Thus, 43% of respondents noted that overcoming the 10-year treasury securities level of 2% per annum will cause a more than 10% correction in the stock market. And the share of investors expecting higher inflation over the next 12 months increased by 7% over the month and reached 93%. It is also worth noting that the survey showed the highest level of optimism in commodity markets in more than 20 years. The Fed meeting, therefore, will be a turning point for market sentiment - the scale of the market reaction will depend on the regulator's statements on inflation and yields. We expect that the regulator will continue its rhetoric, linking the growth of yields with the high pace of economic recovery and downplaying inflationary risks. Moreover, the Fed will once again note that with strong price growth, the regulator has all the tools to fight inflation. In addition to the main results of the meeting, it is worth paying attention to Powell's press conference, the updated macroeconomic forecast and the "dot plot" - a dot chart of personal expectations of board members, since so far only one person expects a rate hike next year. Markets are also waiting for the extension of the SLR relief for banks, the cancellation of which at the end of the month may lead to the sale of treasury bonds and pressure on yields.
Yesterday, data on retail sales in the United States were published, which turned out to be worse than expected. So, in February, the indicator fell by 3% m / m, which was the maximum fall since April 2020, while the market expected a weaker decline of 0.5% m/m. At the same time, January retail sales were significantly revised up – the updated data show an increase of 7.6% m/m against 5.3% m/m, according to the first estimate. Such high values in January, associated with one-time incentive payments of $600, may be one of the reasons for the fall in February sales. Also, the weak activity in the retail trade is partly due to the abnormal cold weather in some regions of the United States. In addition, yesterday, data on industrial production in the United States were published, which also did not add to the positive market. After rising by 1.1% m/m last month, the indicator in February fell by 2.2% m/m, which was also the strongest drop since April last year. Industrial production, thus, also turned out to be worse than expected – the consensus forecast assumed an increase of 0.3% m/m. At the same time, positive data from the February PMI indicate that the reason for the decline in production was primarily the cold weather, and not economic factors. It is worth noting that the March data on both retail sales and industrial production should show significant growth. This will be due to the support measures taken, including one-time payments of $1,400, and to the normalized weather conditions.
Today, oil is moderately declining, with Brent futures falling 0.5% in the morning. Oil continues to be pressured by the refusal of European countries to use the AstraZeneca vaccine, which reduces the prospects for a recovery in demand. At the same time, short-term quotes support unexpected data on oil reserves in the United States from the American Petroleum Institute (API). So, after an increase in reserves by 13.8 million barrels. Last week, the API showed a decrease in oil reserves by 1 million barrels. At the same time, the Reuters consensus forecast suggested an increase of 3 million barrels. Bezin reserves also fell by 0.9 million barrels. It should be noted that in addition to the traditional data on reserves from the US Department of Energy, the monthly report of the International Energy Agency will be published today, in which we will see updated forecasts for supply and demand.