Published: March 9th, 2021
On Friday, March 5, the STOXX Europe 600 lost almost 0.8%. The decline came on the backdrop of an earlier 1% drop. Meanwhile, the benchmark U.S. 10-year Treasury yield shot past 1.6% as the country posted a strong jobs report.
European markets recorded marginal but significant slumps as the U.S. Treasury bonds continued to influence investors' sentiments. The pan-continental STOXX Europe 600 index declined by 0.78%, having dipped as low as 1% earlier in the day.
Travel and leisure stocks were the hardest hit, shrinking by 4% as most exchanges and markets transgressed into negative territory. Shares in Europe seemed to receive a week handing over from Asia-Pacific, where the broadest index of stocks, the MSCI, shrunk by 0.89% during the late afternoon trading session on Friday, March 5.
The slow day came even as Li Keqiang, the Chinese premier, announced that China would grow by more than 6% in 2021.
On Wall Street, most stocks declined following the pressure piled by the sell-off of high-flying tech shares. Besides, the better-than-expected jobs report helped fuel market sentiment.
On Friday, March 5, the Labor Department announced that nonfarm payrolls had increased by almost 380,000 for February. Because of the excellent report, the unemployment rate dropped to 6.2%. The February figures dwarf Dow Jones's projections that the economy was capable of only 210,000 jobs, which would not have shifted the unemployment rate from the January figure of 6.3%.
The benchmark U.S. 10-year Treasury's yield shot above 1.6% to etch a 2021 high soon after the Labor Department released the February jobs report. However, Federal Reserve Chair Jerome Powell's remarks also accelerated the movement of the bonds' yield.
On Thursday, March 4, the Fed Reserve Chair said that reopening the economy would create upward pressure on prices. However, he reiterated that the Central Bank would be patient about its policy action even if it experiences some transitory increase in inflation.
Despite Powell's apparent calm, he admitted that the recent rise in yields had grabbed his attention and the Federal Reserve. Markets are watching the yields with an equal amount of keenness. Any shift in market sentiment would likely come from the observable changes.
Meanwhile, in Europe, the European Union unveiled plans to extend the export controls on COVID-19 vaccines. The action comes after a consignment of AstraZeneca vaccines to Australia from the bloc was stopped.
On Thursday, March 4, Reuters reported that Germany would reorganize its resources to address the coronavirus pandemic. The report quoted Finance Minister Olaf Scholtz saying that his country might need a supplementary budget for 2021 to meet additional costs related to the current health pandemic.
Such news and their unfortunate timing might affect European stocks for a few days to come.
Despite the aura of uncertainty around the global stock market, a lot seems to hang on the balance. Many factors would define the trajectory of the economy. The market's reaction on Monday, March 8, affirms this statement.
The European stocks that had shrunk last week managed to claw back close to 2%. However, the jitters of inflation that influenced market sentiment during the previous session still hold much sway.
Global investors keep a keen eye on the U.S. Covid Relief bill, especially against the backdrop of the rising yields.
According to Reuters, European markets exhibited a revival against the drop experienced during last week's session. The STOXX Europe 600 gained 2.2% while banks added 3.7% to top the gains table with almost all sectors and major stock indexes advancing.
The DAX index of Germany inched up some 3.3%, hitting an intra-day high in the process. Meanwhile, Wall Street also experienced a mild rally on Monday, March 8, especially after David Tepper, a renowned hedge fund manager, said that the rapid rise in rates would stabilize.
U.S. futures have assumed a southward trajectory in the early hours of trading on Monday, March 8. The decline was spurred primarily by the continued rise in bond yields. The seemingly unshakable bonds increase is inspiring fears that the Federal Reserve might tighten policy sooner than the markets had predicted.
All the significant moves in the markets came after the Senate passed the $1.9 trillion economic relief bill on Saturday, March 6. Congress has now paved the way for the relevant departments to extend unemployment benefits and offer aid to state and local governments.
Meanwhile, the Treasury Department would embark on processing and sending another round of stimulus checks to Americans who qualify.
The Democrat majority in the house will push the bill through later this week. President Joe Biden is expected to append his signature before March 14, just before unemployment aid programs expire.
Aside from the yields and the climbing price of most stocks, oil prices also dominated the focus on Monday, March 8. An acute increase during the Asian trading session shifted the attention. However, both the U.S. crude and Brent crude futures later steadied at $65.64 and $68.84, respectively, during the afternoon trading session in Europe.
The rise in oil prices is a result of recent happenings in Saudi Arabia. Reuters reported an official in Riyadh saying that the country's oil facilities had been attacked by drones and missiles on Sunday, March 7.
A military spokesperson of the Houthi Movement, officially called Ansar Allah, claimed responsibility for the said attacks. International benchmark Brent crude had initially shot above $70 for the first time in more than 12 months after Saudi Arabia announced the attack.
Ballooning U.S. yields last week revived fears on the trajectory of global stocks and sent European markets tumbling. In the week that ended on Saturday, March 6, STOXX Europe 600 dropped almost 1%. However, the markets seem stable and have clawed back much of the decline experienced last week. The gains come even as the yields continue their rally.