Daily Market Comment – Wall Street hits new records, FX market quiet
Posted on March 16, 2021 at 9:33 am GMTMarios Hadjikyriacos, XM Investment Research Desk
Stock market winning streak continues as yields stabilize
European nations suspend AstraZeneca vaccine, but euro undaunted
US retail sales coming up as traders lay low ahead of FOMC meeting
Stable yields give equities the green light
The equity gravy train keeps on rolling. All the major indices on Wall Street aside from the Nasdaq hit another record high yesterday as bond yields stabilized and economic optimism ruled the day. The accelerated pace of vaccinations in America and the imminent spending boom seem to have reawakened a thirst for risk-taking among investors, who are front-running what will probably be a stellar summer in economic data.
Even the risk of a more hawkish Fed tomorrow appears to have been discounted by market participants. Since traders have already priced in an earlier timeline for rate increases, even if policymakers bring forward their rate forecasts to signal a hike in 2023 through the famous ‘dot plot’, that would still be aligned with market pricing and therefore not much of a shock.
In addition, Chairman Powell is likely to downplay any hawkish signals in his press conference, perhaps arguing that the economy is still in a deep hole and that the projections in the ‘dot plot’ are only a blueprint for rates, not a commitment.
Is it clear skies for stock markets then? It seems that way, at least in America. Enormous government spending is in the pipeline, vaccinations are proceeding ahead of schedule, and interest rates rising in 2023 is still an eternity away. Outside of a new virus mutation that is resistant to the existing vaccines, it is difficult to envision what can ruin the party.
Euro overlooks discouraging vaccine news
However, everything is not rosy in Europe. Germany, France, and Spain joined Italy yesterday in suspending the AstraZeneca vaccine over fears that it could lead to lethal blood clots. This is one of the main vaccines that Europe has been supplied with so far, so this is dismal news for the already-slow pace of vaccinations.
Even if it is deemed safe and these decisions are reversed in the coming days, many people will naturally be hesitant to take this shot after all the negative press coverage. This implies that Europe could continue to lag behind America and Britain in vaccinations, which ultimately translates into a lagging economy.
Yet, judging by the lack of a reaction in the euro, market participants seem to believe that this is merely a bump in the road for the European recovery. Or perhaps the market is under-appreciating the impact this episode could have on the European immunization…