Lean hogs extend their bullish run
12 Mar 2021Source: WisdomTree, Bloomberg. Data as of 10/03/2021.
Relief rally for tech stocks pauses the downward slide
12 Mar 2021The tech-heavy NASDAQ 100 Index surged by around 4% on Tuesday, 09 March. Despite the bounce back, the index is broadly flat year to date (as of 10 March). Among the S&P 500 sectors, energy stocks have extended their lead year to date, given the sharp increase in oil prices in recent weeks. Financials continue to be the second-best performers as a cyclical upswing, and rising rates improve the sector’s outlook.
US dollar regaining lost ground
12 Mar 2021Copper defies the pullback in risk assets
04 Mar 2021The reflation trade is continuing to support metals like copper. Gradually improving economic data, vaccine optimism, and the prospect of additional fiscal stimulus in the US helps boost the metal’s bull run. The growing interest in emerging technologies that use copper (like electric vehicles) has given an additional impetus to copper prices. Front-month copper futures were up over 14% in February – compared to gains of 2.6% for the S&P 500 Index. This takes copper’s price gains to over 18% year to date compared to just over 10% for the Bloomberg Industrial Metals Subindex – an index that also includes aluminium, nickel, and zinc.
Gold feeling the pinch from rising yields
04 Mar 2021The main driver for falling gold prices of late is the fact that Treasury yields have risen quite sharply. Gold and Treasuries have a strong relationship. But Treasuries aren't the only thing that drive gold prices. Inflation, dollar depreciation also drive gold prices. Today inflation is very tame, but inflation expectations are rising. With very strong monetary support there is potential for inflation to rise substantially in future years. So many investors maintain a financial hedge against future inflation using gold. But for today with relatively weak inflation gold prices are subdued. But this potentially opens up a good entry point. Turning to currency, we believe that the US dollar is on a structurally weak path, with rising indebtedness. US dollar depreciation has only just started and given the lag in the relationship with indebtedness, this trend could last for several years. So we believe the headwinds in gold could be quite temporary, with gold likely to do better as inflation and dollar depreciation pick up pace.”
Stock markets remain jittery over rising US Treasury yields
04 Mar 2021US equity markets remain under the shadow of rising long term Treasury yields. Since the second half of February, the pullback has been more pronounced in the tech-heavy NASDAQ Composite Index compared to the S&P 500 Index. A similar effect has been visible in global equities, where growth stocks have taken a harder hit compared to value stocks in recent weeks. As of 03 March, the MSCI World Growth Index is up 0.7%, while the MSCI World Value Index has gained 5.1%.
Treasury curve steepens further as 20-year yields hit December 2019 levels
04 Mar 2021The US Treasury yield curve has steepened further in recent weeks as long-term rates have risen on account of rising inflation expectations. The US Federal Reserve’s reiteration of its accommodative position for the foreseeable future has, so far, done little to quell the rise in yields. While the most recent US Consumer Price Index (CPI) inflation year on year figure for January was 1.4%, US breakeven rates are pricing inflation to reach around 2.5% within a year.
Copper’s bullish run gains more speed
25 Feb 2021Gradually improving economic data, strong Chinese demand and growing interest in emerging technologies that use copper (like electric vehicles) have given an additional impetus to copper’s bull run. Front month copper futures are up over 18% this month, as of 24 February. This takes copper’s gains to over 20% year to date compared to just over 14% for the Bloomberg Industrial Metals Subindex – an index that also includes aluminium, nickel, and zinc.
Stock markets retreat on rising bond yields
25 Feb 2021A sharp increase in longer dated Treasury yields has caused a pullback in equity markets in the second half of February. Rising inflation expectations have caused markets to worry about the prospect of the Federal Reserve (Fed) tightening its policy earlier than expected. Having said that, the Fed has reiterated its position to keep rates low for the foreseeable future. While this may ease nerves among investors, it is possible that fiscal stimulus announcements become the next pivot for equity markets.
Strong rally in broad commodities
25 Feb 2021Broad commodities have historically served as an effective hedge against moderate increases in inflation. This is likely to be one of the reasons why flows to broad commodity exchange traded products have exceeded all other commodity sectors by far year to date. Broad commodities have also been able to capture the strong performance across various cyclical sectors including industrial metals, energy, and agricultural commodities. As of 24 February, the Bloomberg Commodity Index is up over 12% year to date.