Interest rates are in the spotlight as the long end of the yield curve is beginning to rise in swift fashion. There is a debate among investors as to what is causing the rise as some would say it reflects an expected recovery in the economy OR rising inflation expectations. And some say both.
Below is a side-by-side chart of 10Yr & 30Yr Yields. As you can see, the patterns for both look similar but 30Yr yields are leading the way higher and are already above 2%.
The Fed has said they will keep short-term rates pinned near zero so this means the yield curve will steepen which is good for spread lenders like banks. Generally speaking, economists will tell you that this is a sign of a healthy economy so this is not a bad thing. However, a rapid change in interest rates can spook markets so this is a risk factor to watch in the coming weeks/months.
For the stock market, it was an uneventful week of price action. Trading was rangebound for the major indices as you can see below for the S&P 500. Earnings season is closing out and the next few weeks have weak seasonality so we may not have much to talk about in the stock market until March. However, I will be watching closely at how stocks react to the rate of change in the yield curve for any signs of turbulence.
Chart of the Week!
Economic & Central Banking Snippets
- Builders are still going strong: The number of construction permits issued climbed to the highest level since 2006. “Permits healthily exceeded expectations last month, as clear a sign as any that optimism is translating into actual business plans,” said Zillow economist Matthew Spearman. (WSJ)
- Japan’s February manufacturing and services PMI rose to 47.6 from 47.1 with manufacturing above 50 at 50.6 – “Businesses were optimistic that business conditions would improve in the coming 12 months.” (Boockvar)
- Shipping container shortages are bolstering commodity prices. The cost to move sugar, coffee and copper around the world by sea is rising as ocean freight rates continue to soar since last summer. The shortage of 40-foot steel shipping containers has snarled global supply chains and driven prices for some raw materials higher. (WSJ)
- The Institute of International Finance shows that global debt in 2020 rose to a new high of $281 Trillion. That is 355% of global GDP. About half the debt increase was from government and the other half from the private sector (business and households).
- Streaming platform Roku smashed Q4 expectations and said its users streamed 58.7 billion hours of content in all of 2020, up 55% from 2019.
- Platinum prices have risen 22% in 2021 and are at their highest level in six years. The precious metal is used in catalytic converters and investors are betting demand will rise along with car sales this year. (Investopedia)
- Lumber prices are at record highs which signals that the pandemic building boom will continue into 2021. Records are being set across species, products and grades, according to pricing service Random Lengths. Lumber mills shut down at the pandemic’s onset, reasoning that widespread job losses would wipe out a promising spring for home-building. They were wrong. Stuck-at-home Americans undertook home-improvement projects, and builders faced a stampede to the suburbs. (WSJ)
- China is planning its own digital currency. “China’s digital renminbi is a ‘central bank digital currency,’ making it in some ways the opposite of cryptocurrencies such as bitcoin. Cryptocurrencies are often decentralized and are not issued or backed by governments. However, the ‘e-yuan’ is issued and regulated by the central bank and its status as legal tender is guaranteed by the Chinese state. Its digital format enables the central bank to track all transactions in real time. Beijing will use this feature to combat money laundering, corruption and the financing of ‘terrorism’ and strengthen its already formidable surveillance powers for the ruling Communist party”. (WSJ)
- The day trading frenzy looks to continue. An average of about 15 billion shares are being traded every day in 2021 – more than double the average from last year. Retail trading as a share of overall market activity has nearly doubled from 16% to over 30% in just the past six months. (WSJ)
That is all for now and thank you for being a subscriber!
President – Kisco Capital