Bonds Slide; Asia Stocks Rally on Reflation Buzz; with the Dow that surged to a record close

25/02/2021 Bonds sold off and Asian stocks rallied as investors focused on the prospects of a stronger-than-expected recovery and the Federal Reserve’s pledges of prolonged support. The 10-year Treasury yield climbed to the highest in a year, while Japan’s longer-dated benchmarks climbed to multiyear records. Australian yields jumped despite the central bank buying bonds for the second time this week to defend its three- year yield target. Stocks rose across the region, led by Hong Kong, South Korea and Japan. S&P 500 futures rose 0.2% after the index closed the U.S. session higher despite weakness in tech shares. The banking sector’s outperformance drove an industry gauge to its highest since 2007. Small caps rallied more than 2% after U.S. regulators said Johnson & Johnson’s Covid-19 vaccine is safe and effective. Crude oil remains close to a one-year peak as traders see supply tightening with demand returning. Base metals advanced on the recovery optimism, with copper and aluminum both spiking to the highest since 2011. Tencent trades 1.6% higher in HK. We in for a positive start, with the JSE Top 40 futures up 820 points or 1.3%. The Rand is fairly steady at 14.51 vs the USD, although off stronger levels from yesterday.

Locally the FTSE/JSE Africa All-Share Index closed up 0.4% to 66,200, with most sectors except gold closing in the green. Banks gained 1.2% on a stronger rand during the budget speech, with retailers adding 1.8%. Platinums were flat with gold down 1.7%. The Rand was little changed at 14.55 per US$ towards the close after strengthening to around 14.40 during the budget speech, with the Yield on 10-year govt rand bonds that fell 2.2 bps to 8.82 bps.
Finance Minister Tito Mboweni is scheduled to brief the standing committee on finance about the annual budget he delivered yesterday.

  • South Africa Now Sees Primary Surplus as Key Fiscal Anchor
  • South Africa Resists Call for More Airline Funds With Jets Idle
  • J&J Covid Vaccine Found Effective by FDA Before Panel Meets
  • South African Assets Get a Boost as Budget Hits ‘Right Notes’
  • Ramaphosa Pivots on Budget as South Africa Scraps Tax Hikes
  • South Africa’s Cosatu Says Budget Is Pro-Business
  • Distell 1H Net Income 1.40B Rand Vs. 1.21B Rand Y/y
  • South African Stocks Extend Gains as Banks Rally During Budget
  • Anglo American to Report Results; Shares Up 17.3% YTD
  • Mondi to Report Results; Shares Up 3.5% YTD

EARNINGS:

  • Anglo American Plc (AAL LN)
  • Anheuser-Busch InBev SA (ABI BB)
  • Discovery Ltd. (DSY SJ)
  • Distell Group Holdings Ltd. (DGH SJ)
  • Impala Platinum Holdings Ltd. (IMP SJ)
  • Jse Ltd. (JSE SJ)
  • Mondi Plc (MNDI LN)
  • Nepi Rockcastle Plc (NRP SJ)
  • Woolworths Holdings Ltd/South (WHL SJ)

ECONOMIC DATA:

  • 11:30am: Jan. PPI MoM, est. 0.4%, prior 0.2%
  • 11:30am: Jan. PPI YoY, est. 3.2%, prior 3.0%

GOVERNMENT:

  • Health Minister Zweli Mkhize will address a briefing on the latest scientific results on the Covid-19 variant that has become dominant in the country
  • The National Council of Provinces will host a briefing on the government’s vaccine roll-out plan
  • President Cyril Ramaphosa will address a webinar on issues confronting small business in South Africa
  • Labor federation Cosatu will brief the media about the outcomes from a meeting of its executive committee

CORPORATE EVENTS:

  • Annual General Meetings: AHA SJ
  • Earnings Calls: AAL LN, ABI BB, DGH SJ, DSY SJ, IMP SJ, NRP SJ, WHL SJ

EU/UK
European stocks closed mostly higher on Wednesday as markets digested remarks from U.S. Federal Reserve Chair Jerome Powell and promising German data. The pan-European Stoxx 600 closed up by about 0.5%, with travel and leisure shares adding 1.9% to lead gains as most sectors and major bourses entered positive territory. Powell told the Senate Banking Committee that the American economy is a long way from its employment and inflation goals, and that it will likely take time for substantial further progress to be achieved. The German economy grew by more than expected in the final quarter of 2020, as strong exports and construction activity supported GDP growth of 0.3%. Earnings were a key driver of individual share price action, with Accor, Wolters Kluwer, Lloyds, William Hill, Metro Bank, Reckitt Benckiser and Iberdrola all reporting before the bell. Lloyds posted a full-year pretax profit of £1.2 billion pounds ($1.70 billion), much lower than the £4.4 billion in 2019, but surpassing analyst expectations of £905 million. Shares of the U.K. lender were marginally higher by the market close. Telecom Italia shares jumped 9% after forecasting a stabilization of profits and sales, while travel-sensitive stocks Tui, Carnival and Dufry climbed 12.8%, 10.5% and 7.5%, respectively. Wolters Kluwer dropped more than 6.3% as analysts reacted indifferently to the Dutch IT firm’s earnings report and outlook. German sportswear brand Puma fell 2.1% after warning of a heavy hit to its short-term profit outlook as a result of pandemic-induced lockdowns.
US
The stock market staged another big intraday comeback on Wednesday as investors continued to pile into names sensitive to an economic comeback, while looking past the risk of inflation and rising interest rates. The Dow Jones Industrial Average wiped out a 110-point loss and climbed 424.51 points, or 1.4%, to a record closing high of 31,961.86, powered by strong performance in energy, industrials and financials. Boeing jumped 8.1%, while Chevron climbed 3.7%. Goldman Sachs and Visa both rose more than 3%. The S&P 500 advanced 1.1% to 3,925.40. At its session low, the broad equity benchmark fell 0.6%. The tech-heavy Nasdaq Composite erased a 1.3% loss and closed 1% higher. Technology stocks sold off earlier in the day as the 10-year Treasury yield topped 1.4% to hit its highest level since February 2020. Higher interest rates could prompt investors to rotate out of high-flyers and into bonds, while they could hamstring growth companies, which benefited from the low-rate environment. Apple, Amazon and Facebook closed in the red but well off their lowest levels.
ASIA
Stocks in Asia-Pacific jumped in Thursday trade after the Dow Jones Industrial Average surged to a record closing high overnight. South Korea’s Kospi led gains regionally as it jumped 3.2%. Hong Kong’s Hang Seng index also saw robust gains as it rose 2.1% in afternoon trade. In Japan, the Nikkei 225 gained 1.6% as shares of conglomerate SoftBank Group surged about 4%. The Topix index also gained 1.3%. Mainland Chinese stocks were higher as the Shanghai composite gained about 1% while the Shenzhen component advanced 0.6%. The S&P/ASX 200 in Australia gained 0.8%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.7%. Shares of South Korean chipmaker SK Hynix soared more than 8% in Thursday trade. The moves came after Nvidia reported fourth-quarter earnings and revenue that topped elevated analyst expectations against the backdrop of a global semiconductor shortage, which has hit sectors ranging from gaming to autos. Meanwhile, Japanese automaker Suzuki Motor’s stock dropped 3%. The firm announced Wednesday that Chairman Osamu Suzuki will leave his post in June and become a senior advisor. On the earnings front, Standard Chartered Bank reported 2020 pretax profit of $1.61 billion, plunging 57% from a year ago. That figure is lower than the $1.85 billion average of analyst forecasts compiled by the bank, according to Reuters.
COMMODITIES
Gold headed for a second straight monthly decline as surging bond yields damped demand for the metal which doesn’t bear interest, while investors also weighed comments from the Federal Reserve chair on growth and inflation with
encouraging vaccine news. Spot gold declined 0.5% to $1,796 an ounce, and is 2.8% lower in February, following a 2.7% drop a month earlier. Silver rose, while platinum and palladium fell.
Oil extended gains after closing at the highest level in more than a year as a slump in U.S. crude production following the cold blast and shrinking European stockpiles tightened the market further. Futures in New York rose toward $64 a barrel after adding 2.5% on Wednesday. U.S. crude output slid below 10 million barrels a day last week during the big freeze, matching a low reached last summer following outages caused by Hurricane Laura. Stockpiles continue to shrink globally with inventories at a major European storage hub falling to the lowest since September.
Aluminum in China spiked to the highest since 2011 on concerns about supply in one of the country’s major production hubs, while copper extended its surge on a bullish outlook for demand. Aluminum climbed as much as 6% on the Shanghai Futures Exchange, and was trading 4.4% higher at 17,355 yuan a ton. On the London Metal Exchange, prices rose as much as 2.4% to $2,237 a ton, the highest since 2018. LME copper gained 2.6%, bringing its year-to-date advance to 23%. Tin rose as much as 3% to the highest since 2011.
Steel rebar futures climbed to the highest in almost a decade after China’s top steelmaking region ordered production curbs to head off a bout of pollution. In iron ore markets, futures gained 2%, while prices on the Singapore Exchange were 0.2% lower at $168.70 a ton.
Some key events to watch this week:

  • Finance ministers and central bankers from the Group of 20 will meet virtually Friday. U.S. Treasury Secretary Janet Yellen will be among the attendees.