Market sentiment improved as vaccine optimism continues to build up, it is estimated that most major western economies would be able to vaccinate most of their population by the end of 2021, which points to a swift return to normal. However, bond yields surged later on in the month, triggering market correction due to the speed of the surge. In our opinion, long end bond yields going higher while the short end stays unchanged is simply a steepening of the yield curve, which is traditionally considered to be an indicator of a positive economic outlook.

Henceforth, the latest market movement is likely a healthy correction, as the market has gained a lot since November 2020. Such a correction reduces the valuation multiple, bringing it more in line with the historic average. Considering the current recovery in the economy, proven by the leading economic indicators, the steady progress of the vaccination rollout, and the passing of the huge stimulus bill, the outlook of the US equity remains positive for the year.

 US

US President Joe Biden signed the US$1.9 trillion stimulus bill on Thursday, pushing the S&P 500 to a new record high in the footsteps of the Dow, and fund flows lifted technology stocks higher, as the three major equity indexes rose between 4.53% and 5.31% over the past 5 days ending Thursday. Earlier, the OECD forecasted that the global economic output would grow by 5.6% YoY, with the US growth rate doubling from the previous forecast to 6.5%. Indeed, recent economic data is encouraging, with the number of initial jobless claims in the US at its lowest level since November 2020, while the core CPI rose at a lower YoY and MoM rate than expected in February, easing concerns about faster inflation and sending US stocks further up after the stimulus package was passed by Congress. Next week, retail sales data and the Conference Board Leading Economic Index will be released, and the Fed will hold the March interest rate meeting, where policy rates are expected to remain unchanged.

 Europe

Stocks in the UK, France, and Germany rose further as the ECB pledged to accelerate asset purchases, which sent the three major European Indexes up between 1.29% and 3.65% over the past 5 days ending Thursday. The ECB announced that it would keep its main refinancing rate unchanged at zero and the overall size of the PEPP unchanged at €1.85 trillion, but pledged to accelerate the pace of bond purchases in the coming months to curb the rise in bond yields, which was positive for market sentiment. In addition, the ECB expects Eurozone GDP to grow by 4% this year, which is higher than the forecast made in December last year, and expects the average inflation rate to rise to 1.5% this year, which is also higher than earlier estimates. Next week, the Bank of England will hold a meeting on interest rates, while Germany will release its ZEW survey expectations.

 China

China's national ‘Two sessions’ concluded with Premier Li Keqiang announcing that the growth target for this year was set at over 6%, with the intention of avoiding major swings in the economy. Despite a rebound in the market during the last two days of the National People's Congress, the CSI 300 Index fell by 2.9% throughout the two sessions, posting a loss of 2.21% for the week. As the US dollar strengthened, both the onshore and offshore RMB shed their YTD gains. Hong Kong stocks weakened on Friday, dragging the Hang Seng Index down 1.23% for the week, as it was reported that Tencent was facing a widespread regulatory overhaul on fintech and trading in China. The focus of the market was on Baidu, which is in the process of IPO, and BiliBili, which is likely to be the next in line. Next week, China will release a series of data on fixed investment, industrial production, and retail sales.

 US

Continuing the recent trend, US treasury yields went up again on Thursday, climbing as high as 1.57%. In turn, equity markets reacted to the spike with yet another correction, the S&P 500 and the Dow recorded losses of over 1.5% over the past 5 days ending Thursday, while the NASDAQ saw a larger correction of over 3%, bringing the YTD performance into negative territory once again. Fed chair Jerome Powell earlier mentioned that the inflation is still far from the Fed target level, and the lack of full employment in the US necessitates the loose monetary policy in the near future. As a result of his remarks, yields shot up, causing spot gold to briefly fall below USD 1,690 per oz, while the Dollar index rose 0.83% over the past 5 days ending Thursday. As for the fiscal side of things, the Senate is expected to pass the stimulus bill soon, which could boost the somewhat struggling economy. In other news, OPEC+ decided to keep the current production cuts intact after the meeting on Thursday, Saudi Arabia also promised to keep her voluntary 1 million bpd cut in place. Crude prices jumped as a result, WTI futures rose over the USD 64/barrel mark. Next week, fresh data on CPI, Michigan Consumer Sentiment, and jobless claims will be in focus, possibly giving investors a better picture on the US economy.

 Europe

European stocks performed better this week as sentiment in the region seems to be insulated from the surge in US Treasury yields. Individual equity indexes was mixed bag, German equities led the way with a 1.28% gain over the past 5 days ending Thursday, while the UK FTSE slightly lost 0.02% over the same period. Traditionally, the steepening of the yield curve actually hints at an improving economy, cyclicals such as European financials could likely benefit from the trend. Epidemic wise, vaccination progress in the Eurozone still lags behind other developed countries such as the UK and the US, investors could follow that closely if this could potentially undermine future economic recovery. As for the economy, manufacturing data in the region remain strong, but the weak retail sales and services PMI figures hints at potential weakness. Next week, the ECB will hold another interest rate meeting. Considering the situation of the current economy, market expects no changes to the loose monetary policies. Europe will also release data on industrial production, German CPI, and Eurozone GDP. 

 China

The US equity market correction continue to have ripple effects across the globe, the selloff in the more expensive tech stocks extended to Chinese and Hong Kong markets. We saw more profit taking in the new economy sector, the overall market however saw relatively limited correction. Over the week, the CSI 300 were down more than 1%, the Hang Seng Index edged slightly higher, while the Hang Seng Tech Index lost more than 3%. The national ‘Two Sessions’ have commenced on Thursday, the largest takeaways up till now is the target economic growth of 6% this year, which is close to our estimates at the beginning of the year; and carbon reduction shall be a national policy direction, considering the targets of reaching peak carbon by 2030 and carbon neutrality by 2060, his should continue to benefit relevant sectors, with electric vehicles and clean energy sectors being the largest likely beneficiaries. Next week, China will announce the latest medium-term lending facility (MLF) rates, and release figures for money market M2, CPI, and PPI.

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