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March 1, 2021

Traders take more risk on Monday!

Senate in focus as COVID-19 relief bill arrives

Senate in focus as COVID-19 relief bill arrives

US Democrats are nervous and rather anxious for Congress to pass the $1.9 trillion coronavirus relief bill, hopefully within the next couple of weeks. The biggest challenge for passing this bill is going to be the fact that the Senate is split 50-50, and then the tiebreaker, of course, is VP Harris. In other words, to pass this bill, all Democrats must vote in the affirmative, or they must have a few Republicans across the aisle. With the contentious state of US politics over the last couple of years, it is a bit difficult to imagine a scenario where a lot of Republicans feel like working with Democrats.

Republicans in Congress have been saying that the plan is far too expensive and includes things like transportation projects that have nothing to do with relief or COVID-19. In other words, it is yet another pork-laden bill. “It is $1.9 trillion, more than half of it will not even be spent in this calendar year… So how could it be about COVID relief? No one expects in a year from now that will be in the COVID crisis that we are in now,” Republican Sen. Rob Portman stated over the weekend.

Furthermore, one of the biggest fights will be over the minimum wage, which is anticipated to be an attempt to get it from $7.25 to $15 per hour. At this point, there are some Democrats that are willing to use the tax code to force companies to make this change, if it cannot pass through the Senate itself. Both chambers must pass an exact replica of each other’s bill in order to pass it on to Joe Biden to put into law. At this point, it is very difficult to get things done before March 14, when extended unemployment benefits run out.

Stocks rebound as bond markets stabilise

Stocks rebound as bond markets stabilise

One of the most positive signs on Monday was indices in the United Kingdom, and the European Union have rallied, setting up Wall Street for further gains as bond markets around the world have stabilised. Equities are showing signs of resiliency, but the pickup in real yields is something that is most certainly worth watching due to the fact that it tends to be toxic for highly valued risk assets, especially those stocks that are considered to be “growth-oriented.”

Yields have been like a wrecking ball for multiple assets around the world, not just stocks. For example, gold is down roughly 15% from the highs, as those higher yields make gold underperform. This is due to the ability to clip coupons on a bond instead of paying for storage for gold. Because of this, even if you are not one who typically pays much attention to the fixed income markets, it is crucial to do so in this environment.

European manufacturing increases

European manufacturing increases

The Eurozone reported on Monday that factory activity has shot higher in February due to soaring demand. The burst of business also has had a negative effect on business as it led to a shortage of raw materials and a spike in input costs. HIS Markit’s Final Manufacturing Purchasing Managers Index jumped to a three year high of 57.9 in February, rising from the reading of 54.8 in January.

“Manufacturing is appearing as an increasingly bright spot in the EU economy so far this year,” stated Chris Williamson, chief business economists for HIS Markit. This has been a bit of a shock due to the conventional wisdom and expectations of economists that anticipated the EU to go into a significant recession.

Global Equity Markets

Global Equity Markets

Stock markets rallied significantly during the course of the session on Monday as traders came back from the weekend willing to take on more risk. The Nikkei 225 started off the day with a bang, gaining 2.41%, while Europe was also relatively strong. London was up 1.44%, Germany up 1.41%, while the French gained 1.54% as well. At midday in the United States, the S&P 500 is up over 2%.

Index Change
FTSE100

FTSE100

1.44

DAX

DAX

1.41

CAC40

CAC40

1.54

Nikkei 225

Nikkei 225

2.41

S&P 500

S&P 500

2.17

Currencies

Currencies

Currencies were a bit mixed, as the Australian dollar took off to the upside, gaining 89 basis points based upon the idea of the commodity trade rallied again. The “reflation trade” has heavily favoured Australia, as it supplies so many of the hard assets to places like China. The euro was down almost ¼%, while the British pound was essentially flat. The dollar was up 1/10% against the yen, showing that the market was somewhat mixed in general beyond being very pro-Aussie.

Index Change
EUR/USD

EUR/USD

-0.2351

GBP/USD

GBP/USD

0.0401

USD/JPY

USD/JPY

0.1011

AUD/USD

AUD/USD

0.8904

Commodities

Commodities

Commodity markets were positive all across the board, with gold gaining ½%, with silver gaining well over 2%. The WTI Crude Oil market was relatively flat as we are overextended, while platinum was up 1.79%, with copper being up 1.1% as it continues to be one of the best performers out there. At this point, commodities continue to get jumped into based upon the idea of stimulus and easy monetary policy around the world. The “reopening trade” continues to be a main driver of inflows into the commodity markets.

Index Change
Gold

Gold

0.50

Silver

Silver

2.14

WTI Crude

WTI Crude

0.16

Platinum

Platinum

1.79

Copper

Copper

1.10

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