Market Pulse - February 2021

Key themes

Vaccine rollout gathers pace

Political relief in Italy, but US divisions remain

Fourth-quarter earnings are encouraging

Markets snapshot

The MSCI AC World equity index rose +2.5% (+2.4% in euro terms).

Emerging markets rose +1.0% (+0.9% in euro terms), underperforming due to their sensitivity to rising US yields.

Pacific Basin equities rose +2.3% (+3.0% in euro terms), as the prospects for growth looked brighter and commodity prices rose.

European equities rose +2.6% (+2.2% in euro terms) as growth expectations improved and investors positioned themselves in value-focused markets in the hopes of outperformance in cyclicals.

The US rose +2.6% (+2.7% in euro terms) as Democrats pushed ahead with plans for $1.9bn in additional US fiscal stimulus.

Eurozone >5-year bonds fell -2.7%, with the German 10-year yield rising 26 basis points (bps) to -0.26%, pulled higher by US Treasuries.

The announcement that Mario Draghi would form a new government in Italy supported spreads in peripheral European bonds; Italian 10-year spreads narrowed by 14bps to 102bps.

The euro fell against the US dollar to 1.2043, driven by higher US yields. The dollar also benefited from the more ‘risk off’ environment at month-end.

Commodities rose 10.6% (10.7% in euro terms), as strong manufacturing demand and supply-side constraints pushed prices higher.

West Texas Intermediate (WTI) oil rose 17.8% as global growth expectations continued to be revised upwards.

Gold fell -6.1%, negatively affected by rising real interest rates and a stronger US dollar.

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