Key events this week: Has the Fed had enough of rising US yields?

March 1, 2021

By Han Tan Market Analyst, ForexTime

US benchmark indices were roiled last week by the selloff in the bond markets. The S&P 500, the Dow Jones, and the Nasdaq 100 indices all posted weekly declines, as 10-year US Treasury yields posted a one-year high and even breached the psychologically-important 1.60 mark before moderating on Friday.

At the time of writing, the futures contracts for all three US benchmark stock indices are jumping higher.

Still, given the surging yields so far in 2021, Fed officials will have ample opportunity to calm the markets down as they come out in full force with their respectively scheduled speeches this week:
Monday, 1 March:

  • New York Fed President John Williams
  • Atlanta Fed President Raphael Bostic
  • Cleveland Fed President Loretta Mester
  • Minneapolis Fed President Neel Kashkari

Tuesday, 2 March:

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  • Fed Governor Lael Brainard
  • San Francisco Fed President Mary Daly

Wednesday, 3 March:

  • Philadelphia Fed President Patrick Harker
  • Chicago Fed President Charles Evans

Thursday, 4 March:

  • Fed Chair Jerome Powell


Besides the scheduled speeches by Fed officials, global investors will have plenty of economic events to keep them occupied this week:

  • Monday, 1 March: US ISM manufacturing; Markit manufacturing PMI for Germany, Eurozone, UK
  • Tuesday, 2 March: RBA policy decision; Eurozone inflation; Germany unemployment
  • Wednesday, 3 March: Chancellor of the Exchequer Rishi Sunak presents UK budget; China’s Caixin services PMI; Fed Beige Book
  • Thursday, 4 March: OPEC+ meeting; US weekly jobless claims; Eurozone retail sales and unemployment
  • Friday, 5 March: US non-farm payrolls; China kicks off National People’s Congress


Key themes

It remains to be seen how market participants digest the cross-currents surrounding these key factors that are weighing on market sentiment:

  • US fiscal stimulus hopes

Over the weekend, the US House of Representatives passed President Joe Biden’s $1.9 trillion fiscal stimulus plan. The proposal now goes to the Senate, with just 2 weeks left before the March 14th deadline for when existing unemployment benefits expires. The Biden administration aims to approve those $1400 checks to American households by then.

Expectations for more US fiscal stimulus had been a major pillar for stock market bulls, although a lot of that optimism has already been baked into prices.

It remains to be seen whether fiscal stimulus optimism is enough to push US stocks higher and overcome the threat of the Fed pulling back its support for global financial markets due to improving US economic conditions.

  • Rising US yields

As investors sell off US Treasuries, yields have been sharply rising.

Ultimately, those yields could hit a height when treasuries become attractive again and investors could then rotate funds back into US Treasuries, at the expense of stocks.

Investors are now mulling where that level would be, and trying to pre-empt such a scenario, which has contributed to the increased market volatility of late.

  • Fed speak

The last thing the US central bank needs is to have the ongoing US economic recovery upended by a financial crisis. Investors will be closely monitoring whether Fed officials can still tolerate these higher Treasury yields, or when they could step in to calm things down in the markets.

So far, the Fed speak has had little success dampening market expectations that policymakers will prematurely ease up on their bond-purchasing programme.

Once the Fed gets serious about keeping yields under control, they might eventually intervene with stronger rhetoric, or even via overt policy measures, which could then dampen the volatility in bonds.

  • US economic data

Should more of this week’s US economic data releases exceed market expectations, that could boost investors’ expectations that the improving US economic conditions would force the Fed to taper its asset-purchasing programme sooner rather than later.

However, signs of more marked improvements in the US economy could also spur value stocks higher while dampening growth stocks, a divergence which is becoming more notable with the climb in energy and financial stocks while the tech sector languishes.


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