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Market Comment | Equity rally falters while bonds rebound

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  • Financial markets showed higher cautiousness, halting somewhat the positive mood triggered yesterday by encouraging US economic data. US Treasuries rebounded today, after six consecutive days of sell-off, despite today’s upbeat economic data and hawkish tone from Fed officials, while the equity rally halted. Moreover, the USD declined today, halting its recent upward trend. In European bond markets, peripheral bond prices surged and yield decreased today, underpinned by the ECB minutes suggesting the ECB may allow temporary deviation from capital key.
  • Following Yellen’s speech (see), a number of Fed members backed a more hawkish Fed route map. Rosengren argued that it would be “appropriate” for the Fed to increase its benchmark lending rate three times this year (see), while Dudley said that he expect higher rates, based on more growth and fiscal stimulus (see). Also, Fischer said that “Federal Reserve is headed on the right path in removing stimulus” (see). Lockhart sees indicators pointing to a stronger economy.
  • ECB minutes: play down the recent increase in inflation, while noting that the downside risk to growth has receded. Regarding the APP, the minutes stated that “there was some room for a trade-off between relative deviations from the capital key across jurisdictions and limiting the extent of purchases below the DFR” (see)
  • Oil prices swung between gains and losses, as investors remained uncertain about two opposite factors driving oil markets: on the one hand, rising US oil production and, on the other hand, OPEC compliance with proposed oil production curbs. Moreover, oil prices rose momentarily on news that OPEC may extend its oil output cuts (see), but oil prices end up lower.
  • Greek sovereign bond yields remained little changed, after reports suggested (see) that Germany may consider that IMF participation is no longer crucial for Greece’s bailout programme, leaving the door open to the programme’s continuation without IMF participation.

 

Update 18 CET 16 February, 2017

Table 1

Source: Bloomberg, Datastream and Haver

* With one day delay

 

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