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March 2, 2021

Fears of inflation continue to creep!

Eurozone inflation steady before future anticipated spike

Eurozone inflation steady before future anticipated spike

Eurozone inflation held steady according to Tuesday’s data release, as was projected last month. This is showing a break in what is likely to be a temporary and sharp spike in consumer prices. Prices in the EU rose by 0.2% for the month of January, and 0.9% year-over-year, which was basically in line with analyst expectations according to a flash estimate from Eurostat, the EU statistics office.

Even though prices are likely to spike going forward, it still is believed that it is very unlikely to prompt the ECB to tighten policy anytime soon, as the spike is considered temporary and inflation is likely to fall sharply towards the end of the year as the “honeymoon phase” of the reopening wanes. In fact, it is anticipated that inflation will stay well below the ECB’s target for years after. With that being the case, headline inflation could certainly rise further in the next few months, but it should be thought of as transitory.

RBA commits to keep three year yields low despite bond rout

RBA commits to keep three year yields low despite bond rout

During the day on Tuesday, Australia’s central bank affirmed its pledge to keep interest rates at historic lows, despite the fact that there has been massive selling as of late, driving yields higher. The Reserve Bank of Australia Gov. Philip Lowe suggested that he did not expect to meet the central banks inflation and employment objectives until 2024, signalling that the cash rate will stay on 0.1% for a significant amount of time. Despite that commitment, Australian bonds did selloff with the 10-year futures contract implying a yield of 1.72%, compared to a yield of 1.66% on Monday.

Figures due to come out on Wednesday are anticipated to show GDP in Australia grew 2.5% in Q4, on top of a 3.3% jump during the previous quarter. Economists generally expect the RBA to extend its quantitative easing programme targeting longer-dated bonds by another AUS$100 billion to help achieve its goals. Gov. Lowe repeated that the RBA was committed to the three-year yield target of 0.1%, while adding that it would purchase more bonds as needed to support that target.

Gold markets looking for yield relief

Gold markets looking for yield relief

Gold markets edged up early on Tuesday, after sliding to their lowest level in 8.5 months as Treasury yields in the United States started to ease, offsetting pressure from a stronger US dollar. Spot gold was up 0.3% early in US trading, reaching as high as $1728 after originally falling down to the $1706 level. Gold futures have risen 0.6% at the same time.

Benchmark US Treasury yields have eased off a one-year high hit last week, while the US dollar index has held rather close to a four-week peak. The strength of the greenback is increasing the bearish pressure on gold markets, but eventually, fears of inflation could strengthen the idea of money flowing into the gold market, as traders will begin to focus on massive amounts of stimulus coming into the market. As things stand, gold markets are hoping for stabilisation at best.

Global Equity Markets

Global Equity Markets

Stock markets were mixed around the world, as there was a decided difference in attitude between the European region and its counterparts in North America and Asia. The Nikkei 225 started the session very softly, dropping 86 basis points. By midday in the United States, the S&P 500 was down just over ½%. However, the European region was quite a bit different as London picked up 78 basis points, Germany picked up 38, and the French came in at just under ½% gains.

Index Change
FTSE100

FTSE100

0.78

DAX

DAX

0.38

CAC40

CAC40

0.48

Nikkei 225

Nikkei 225

-0.86

S&P 500

S&P 500

-0.51

Currencies

Currencies

Currencies were decidedly anti-US dollar, as the Euro gained 15 basis points during the trading session after initially dropping. The British pound also found buyers after initially falling, rising 23 basis points. The Australian dollar was the big gainer, with over ½% gains for the session. The US dollar also found trouble with the Japanese yen, as the yen gained roughly 4 basis points in a rather quiet trading.

Index Change
EUR/USD

EUR/USD

0.1519

GBP/USD

GBP/USD

0.2311

USD/JPY

USD/JPY

-0.0371

AUD/USD

AUD/USD

0.5442

Commodities

Commodities

Commodity markets were a bit mixed during the trading session, with copper being the big winner, rallying 1.29%. The platinum market was up 61 basis points during the trading session, while crude oil was relatively unchanged. However, the precious metals markets were a bit negative as gold was slightly negative, and silver lost 8/10 of a per cent.

Index Change
Gold

Gold

-0.01

Silver

Silver

-0.84

WTI Crude

WTI Crude

0.08

Platinum

Platinum

0.61

Copper

Copper

1.29

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