Every week The Park Bench will bring you the Financial Market Recap written by MCR member Yanrong Hong.
Major economic data released this week:
- Monday: Japan Q4 GDP (+3.0% QoQ, +12.7% YoY)
- Tuesday: German Feb ZEW Economic Sentiment (actual 71.2 > forecast 59.6, previous 61.8)
- Wednesday: UK Jan CPI (+0.7% YoY, -0.2% MoM); ECB Monetary Policy Statement; US Jan Core Retail Sales (+5.9% MoM > forecast 1.0%, previous -1.8%); US Jan PPI (+1.3% MoM; +1.7% YoY)
- Thursday: FOMC Meeting; US Jan Building Permits (actual 1.881M > forecast 1.678M, previous 1.704M); US Initial Jobless Claims (actual 861K > forecast 765K, previous 848K) (Comment later)
- Friday: US Crude Oil Inventories (actual -7.258M < forecast -2.429M, previous -6.644M); US Jan Existing Home Sales (actual 6.69M > forecast 6.61M, previous 6.65M); US Fed Monetary Policy Report; UK Jan Retail Sales (-8.2% MoM, -5.9% YoY); UK Composite PMI (actual 49.8 > forecast 42.2), previous 41.2)
1/ U.S. stocks finished mostly lower as U.S. bond yields surged to the highest in a year (10-yr UST ended at over 1.3% on Friday), renewing concern that rising borrowing costs and price pressures could derail the economic recovery. The recent increase in bond yields has been largely driven by the reflation trade, a bet on a return of inflation from a new wave of stimulus spending under President Biden and a Democrat-controlled Congress. However, the investors may not want to see the yields still rising and it could make equities less attractive than safe-haven treasuries. Higher yields could be a particular concern if they start to hit the big technology and communications stocks that powered markets higher for much of the last year. Tech and other growth stocks with longer duration cash flows are more sensitive to rising yields as those flows are discounted at higher rates.
2/ Initial jobless claims totaled 861K in this week. Applications for U.S. state unemployment insurance jumped to a four-week high, indicating the labor market is suffering fresh setbacks even as the coronavirus pandemic shows signs of ebbing. The data suggest the labor market has a tougher road to recovery than previously thought as initial claims have failed to show any sustained decline for five months. While other parts of the economy are near or above pre-pandemic levels, millions of Americans remain out of work and are struggling to pay their bills.
3/ U.S. oil production has plunged by more than 2 million barrels (would be the equivalent of about 18% of overall U.S. crude production) a day as the coldest weather in 30 years wreaks havoc on key producing states. The current crude oil output losses are due to a combination of well shutdowns, flow-line outages, and disrupted road transport, all due to the extreme cold weather. The cold has pushed natural gas prices at one trading hub up 24,000% from just a week ago.
(Source: Bloomberg, Wall Street Journal, Financial Times)
Yanrong (Sunny) Hong is reading for the MSc in Financial Economics.
She hopes that these weekly recaps will lead to meaningful discussions amongst any Regent’s members interested in Businness or Finance. If that’s you, then leave a question or comment in the section below, or send her a message: yanrong.hong@regents.ox.ac.uk
[Featured image photo credit: Maxim Hopman on Unsplash]
