What’s Moving Markets?

Over the weekend, important results were released from an Israeli study which concluded that the Covid-19 vaccine made by Pfizer and BioNTech appears to stop the vast majority of people becoming infected, providing the first indication that immunization will curb the spread of the virus.

In the U.K., following a steep drop off in daily infections, Prime Minister Boris Johnson announced a return back to schools in early March and the resumption of outdoor sport activities, including the likes of football and tennis. There is a push for life to return as “normal” as possible by April, made possible by the effective roll-out of the vaccination program.

Cryptocurrency is at the forefront of investor chatter as Bitcoin touched another record over the weekend after the cryptocurrency hit USD 1 trillion in market value. The crypto fervour has been likened to the trading frenzy experienced in GameStop shares and arguably Tesla too, whose founder took a sizable position in the digital asset earlier this month. Calling a top on such a momentum filled asset is a challenge, however there are signs that even the most bullish investors, including Musk himself, is starting to get wobbly feet, tweeting that both Bitcoin and Ether “seem high”.

Talk around the reflation trade continues to gather pace, as the obstacles surrounding the path to higher U.S. treasury yields appear to be dissipating. The U.S. has made significant progress with its mass vaccination roll-out, increasing the prospects for allowing businesses to fully re-open within near future. Furthermore, additional fiscal stimulus plans are conducive to higher yields, hints of which will be looked out for closely during Powell’s first congressional testimony of the Biden era.

This is especially significant for the equity market, as the relationship between rising yields due to increasing inflation expectations does not have a linear relationship with the stock market. Indeed, despite a possible increase in volatility in the general market, some sectors will benefit from price pressures increasing, including commodities and related industrial sectors, and cyclical stocks which are less price sensitive.

More defensive stocks that provide consistent dividends and stable earnings regardless of the state of the market tend to underperform when inflation expectations rise and traditionally include areas such as utilities, healthcare and consumer staples.

Oil giants are set for a busy week of discussion over the future direction of supply volumes. Saudi Arabia and Russia remain on opposite sides of the debate about crude output ahead of an OPEC+ meeting in March, with Riyadh said to prefer keeping output steady while Russia wants to proceed with a supply increase. The oil producing U.S. state of Texas has also been in the spotlight in the past week due to the extreme weather conditions which has disrupted plants operating in the state, even affecting the provision of power to households.

Finally, 64 companies in the S&P 500 are still to report as well as a further 109 from the STOXX 600. Among the highlights will be Home Depot, Medtronic, HSBC and Intuit tomorrow. Then on Wednesday, we’ll hear from Nvidia, Lowe’s, Booking Holdings, TJX, Iberdrola, Lloyds Banking Group and Royal Bank of Canada. Thursday sees releases from Salesforce, AB InBev, American Tower, Standard Chartered, Axa, Moderna, Centrica and HP, before Deutsche Telekom release on Friday.