Marius Paun | London, UK | Senior dealer | Friday 26th February 2021
Bond Vigilantes Are Back With A Vengeance
Going into the weekend, the US stock markets were struggling to rebound from the sharp losses posted in the previous sessions due to rising bonds yields. And this tug of war between the reflation trade and rising yields in US treasuries is set to continue.
Fed Chair Jerome Powell testified before Congress earlier in the week and tried to ease concerns the Fed would tighten any time soon, saying the economy is a long way from employment and inflation goals. He admitted the momentum has slowed after the summer recovery and it will take some time for further progress to be achieved. He reiterated the promise to keep rates low until full employment and inflation rises to 2%. Furthermore, the Fed will clearly communicate ‘well in advance’ any shift in the bond-buying program.
Meanwhile, the US Senate majority leader Chuck Schumer promised the $1.9 trillion stimuli will be adopted before March 14th. Now, attention will focus on a $3 trillion infrastructure package due later in the year.
China commented on the root cause of the strained relationship with the US blaming the former US administration. However, the media didn’t help by reporting Treasury Secretary Yellen saying Trump’s tariffs will be kept in place for the moment. Senior Chinese diplomat Wang Yi hopes Washington ‘will abandon irrational suppression of China’s tech progress’ and also will remove ‘unreasonable tariffs on Chinese goods.
European Central Bank’s President Christine Lagarde is keeping a close eye on the evolution of longer-term yields. It will monitor the transmission of the monetary policy and keep supporting all the sectors of the economy… on the other side of the pond, someone is getting edgy on the return of bond ‘vigilantes’?
Finally, the long-awaited ease of lockdown restrictions in the UK will commence from March 8th when schools will re-open. The stay-at-home order will end on March 29th and non-essential shops and hospitality will resume activity no earlier than April 12th. The Public will be asked to work from home if possible until June 21st. The good news sent the sterling higher against the US dollar, soaring to above 1.42, although it had dropped back below 1.40 on Friday afternoon.
Gold prices remained under pressure throughout the week dropping below $1730, an 8-month low, on the back of rising bond yields. The prospects of real interest rates moving up (rates less inflation) is never a good omen for the precious metal. Analysts were also adding that gold is losing its lustre to cryptos.
The US Oil price continued its rally reaching $63.7 this week. The OPEC+ meeting is scheduled on March 4th with two questions on the agenda: whether Saudi Arabia will scale back its 1 million barrels voluntary cut in output due in March and whether an additional increase in supply will be adopted for the cartel?
Bitcoin reached above $58,000 only to pull back sharply afterwards to $44,000 on Friday. The culprit was a mining pool called F2 Pool, which apparently sold over 3,600 Bitcoins.