Insights

WuRevue Week Ending 2/19/2021

Top News:

02/15: While US markets were closed, one key Japanese stock index touched its highest level since 1990, after the world’s third largest economy said its 4Q GDP expanded at a faster than expected annualized rate of 12.7%.

 

02/16: Participants took note of the continuing rise in the 10-year Treasury note yield, thanks to optimism over the Covid-19 fight (here, here and here) and likelihood of more fiscal stimulus.  Across the Atlantic, EU’s 4Q GDP fell by 0.4%, sparking concerns of a double-dip recession.  At the same time, the bloc’s largest economy saw an unexpected improvement in future economic expectations, even as current conditions remain challenging.

 

02/17: Fueled by governmental recovery schemes, US retail sales leapt 5.3% last month, far outpacing meager expectations of a 1% increase.  January’s Producer Price Index, which rose at the fastest pace since 2009, also affirmed the US economy’s recovery trajectory.  Meanwhile, UK’s latest weak CPI figure in January suggests the accommodative monetary stance is unlikely to budge.

 

02/18: The US labor market remains bleak as new weekly jobless claims unexpectedly ticked higher.  A notable decline in single-unit housing starts in January spelled no relief for a tight housing market, where investors were also parsing the implications of falling mortgage applications due to rising interest rates.

 

02/19: For now, the housing market remains one bright spot, as existing home sales rose for the second consecutive month in January.  A flash reading of Eurozone economic activities reached a two-month high in February, when manufacturing continued to outshine the services sector.  Hampered by renewed lockdown in January, UK’s retail sales decelerated precipitously; February’s economic levels appeared to have arrested further declines, however.

 

 

Heard on the Street:

“In reality the worst-case scenario for equity investors would be a selloff in [Treasurys] accompanied by widening credit spreads and a strong dollar.  To date, higher US bond yields have not been able to arrest the decline in the greenback — real interest rates are still negative.”

— Sean Darby, global head of strategy at Jefferies, as quoted by MarketWatch on 02/16/2021

 

“Our current recommendation is to stay tactically neutral for the next few weeks to see whether risk-asset valuations can revert to rationality. This means keep existing investments in the market, but hold fire on new deployments of cash.  If valuation reverts to rationality…then investors can safely deploy new cash into the market.”

— Dhaval Joshi, investment strategist at BCA Research, as quoted by MarketWatch on 02/19/2021

 

 

Longer Game:

With the leading benchmark for oil in the U.S. topping $60 a barrel for the first time since Jan. 2020 and other industrial metals gaining in recent months, can the rally in commodities be sustained?  Yes, according to one analyst, who believes the fifth so-called supercycle in the past 100 years has begun.

 

While anticipating a steady recovery in the US, one market strategist highlighted two deteriorating trends in America’s labor market, with worrisome implications for economic growth and political stability.

 

 

Bonus:

Veteran investor Mark Mobius shared his thoughts on opportunities in emerging markets, the likelihood of U.S.-China decoupling, inflationary prospects, and the greenback’s status as reserve currency.