A broker is looking at the screen at the New York Stock Exchange on the 25th (local time), when the US New York Stock Market fell sharply. AP Yonhap News
The founder of Tom Essay at Seven’s Report Research, a US investment advisory firm, warned yesterday that “10-year Treasury yields could exceed 1.6% per year in weeks.” Jerome Powell, chairman of the US Central Bank (Fed), pleaded with the market that the current inflation trend is not sustained, but he believes Treasury bond yields will jump further.
However, on the 25th (local time), just a day after the essay made this remark, the 10-year interest rate exceeded 1.6%. The Volatility Index (VIX) of the Chicago Options Exchange, which is known as Wall Street’s fear index, surged 35.4% to close at 28.89.
Markets are concerned that the stock market, which formed a bubble after the novel coronavirus infection (Corona 19), has finally turned to a downtrend. This is because NASDAQ’s large technology stocks, which have been leading the market since last year, are falling even further. Moreover, when bond yields rise, financial stock prices usually rise, but financial stocks also fell 1.81%. It showed the characteristics of a typical bear market.
Edward Moya, senior analyst at OANDA, a US foreign exchange brokerage firm, said in an interview with CNBC that “the close correlation between US Treasury bonds and the stock market will continue in the future.” The recent index adjustments are rethinking the adage that “no asset just rises”.
Below is an interview with Korea Economic Daily TV’Good Morning Investment Morning’ this morning.
▶Please point out the characteristics of the US stock market that closed today.
Stock markets shook as interest rates for long-term US Treasury bonds surged. Nasdaq, which has been leading the market since last year, plunged 3.52% in one day.
The 10-year Treasury bond yield, used as a benchmark, was once at 1.614% per annum (closed at 1.54% per annum). It jumped more than 0.2 percentage points from yesterday (1.38% per year). Interest rates now are the highest since February 19th last year (1.56% per year). The 30-year maturity rate also jumped to 2.352% per year during the intraday (closed at 2.33% per year).
Fed Chairman Jerome Powell said at a hearing in the House of Representatives that “it will take more than three years to reach the 2.0% inflation target,” but it was not enough to stabilize the market. In particular, the number of large technology stocks, which are considered to have benefited the most from low interest rates, declined.
The US 10-year Treasury yield surged ahead of the closing on the 25th (local time), shocking the stock market. Marketwatch capture
Ironically, what triggered the surge in government bond rates on this day was the expectation of an economic recovery.
Last week, the number of new unemployment benefits claims was totaled to 730,000, down 111,000 from a week ago, and the growth rate of the US gross domestic product (GDP) in the fourth quarter of last year was originally 4.0%, but was revised to 4.1%. Following Pfizer Modena, the approval of the use of the Johnson & Johnson vaccine is imminent, and a $1.9 trillion super stimulus plan is also visible.
Amidst the controversy over short selling, GameStop’s stock price, which raised market uncertainty, surged for two days in a row and rose 18.6% on that day.
▶When President Joe Biden ordered a review of the supply chain for semiconductors and batteries, opinions about the purpose of China’s containment are increasing.
President Biden yesterday issued an executive order to closely review the supply chain of four key items, including semiconductor chips, batteries for electric vehicles, rare earths, and pharmaceuticals, for the next 100 days. Or parts.
It is interpreted that this executive order is a pavement to contain China. All of these items are because the Chinese government is concentrating its national capabilities or already has a significant advantage. The White House also says that “relying on a hostile country like China for the supply of key items is a huge threat.”
The part where semiconductors and batteries are included in the ‘100-day review’ is an issue that Korea should also watch closely, as it could lead to a demand to expand production facilities in the United States. There are also observations that the pressure to choose between the United States and China in the global supply chain may be intensifying.
▶There is also a prospect that the digital dollar era will open within this year, but how is it accepted locally?
Chairman Powell said at the hearing that “this will be the first year to meet the digital dollar,” he said. He said he would be actively involved, including the Fed’s contact with Congress. We are going to start working on legislation.
Finance Minister Janet Yellen also stressed that two days ago, “it is necessary to ensure that the central bank’s digital currency is in circulation, not Bitcoin.” It was interpreted that the US government, which was cautious about digital currency, was focusing on issuance.
The People’s Bank, the central bank of China, has also announced that it will join an international project that uses digitization in trade settlements and financial transactions. China aims to commercialize digital currency for the first time in the world.
Because of this, the Fed’s changed move is an analysis that the purpose of holding China in check even in the digital currency war. In the digital currency sector, competition between the US and China is intensifying.
▶If you introduce major issues and events in the future.
The super stimulus that the stock market has been waiting for is likely to pass the House of Representatives on Saturday morning (local time on the 26th morning) in Korean time. Then, it goes directly to the Senate to deliberate on the bill. Unlike other laws, the budget adjustment process is in progress, so it can be implemented immediately if only the majority agree.
Currently, the Senate is divided into 50 seats by Democrats and Republicans, and some Democrats have expressed opposition to the provisions of the increase in the minimum wage included in the bill, so we have to watch it until the end. If rejected, another hit is expected to be inevitable on the stock market.
Notable among economic indicators released next week is employment trends. On the 5th, the unemployment rate for February comes out. The unemployment rate for January this year was 6.3%, down 0.4 percentage points from last December. You should also watch the number of new unemployment claims released on the 4th day earlier. Last week, the number of claims decreased by 111,000 from a week ago, leading to an interpretation that the massive unemployment situation would subside.
The US unemployment rate is slowly falling. Trading economy provided
In March (16-17), the Fed’s Federal Open Market Committee (FOMC), which is held eight times a year, is scheduled. Prior to this, the Beige Book, an economic trend report, will be released on the 3rd. The Beige Book is the basis for FOMC to determine the base rate, and is prepared by 12 regional Federal Reserve Banks in the United States. Here’s a glimpse into the Fed’s perception of the current economic situation.
Earnings for the fourth quarter of last year (or the first quarter of fiscal 2021) will follow. Video conferencing system builders such as Zoom, Snowflake, Costco, Target, and Gap release report cards.
The following is the main schedule for next week.
-1st (Mon)
Announcement of Results: Zoom Progressive
-2nd (Tue)
Announcement of results: Target Coles HP Enterprise Abercrombie & Pitch Ross Nordstrom
-3 days (Wed)
Earnings announcement: Snowflake Broome Black Rock Wendy’s Dollartree Trip.com
Economic indicator: Fed beige book / ADP employment report (as of February)
-4th (Thursday)
Earnings Announcement: Costco Gap Broadcom Kroger Siena BJ’s Dixie
Economic Indicators: Number of new unemployment benefits claims (based on the previous week) / factory orders (based on January)
-5th (Fri)
Economic indicator: US unemployment rate (as of February) / trade deficit (as of January)
New York = Correspondent Cho Jae-gil [email protected]