26.03.2021 - As of noon on Friday, global equities were lower on the week amid concerns, particularly in Europe, that rising COVID-19 infections and a slow vaccine rollout will delay the region's economic recovery. The yield on the US 10-year Treasury note traded lower for most of the week before rebounding on Friday to 1.68% while a blockage of the Suez Canal saw oil prices rise, boosting the price of a barrel of West Texas Intermediate crude above $61 again. Volatility, as measured by the Cboe Volatility Index (VIX), fell to 19.0, the lowest level in more than a year.
MACRO NEWS
Grounded container ship snarls supply chains Global supply chains have been strained for over a year due to disruptions and bottlenecks caused by the coronavirus, and this week's grounding of a massive container ship in the Egypt's Suez Canal has only added to the problem. As much as 12% of the world's seaborne trade has been halted by the accident, lengthening delivery times for raw materials and other inputs as well as delaying the transport of finished goods from China to Europe. The most immediate impact has been seen in the price of crude oil, which has again risen to above $61 per barrel.
Potential third wave has Europe on edge European officials are bracing for a third wave of COVID-19 infections amid a disastrously slow vaccine rollout. Lockdowns are being tightened in many areas, and travel restrictions are being imposed again at a time when many countries had hoped to be lifting such curbs. The approaching Easter weekend is an added concern, with family gatherings potentially increasing the virus's spread. As a result of renewed restrictions, economists have been lowering European growth forecasts. However, data released this week showed that Europe's manufacturing sector is performing strongly, thanks to strong foreign demand. European Central Bank President Christine Lagarde warned this week of another slow rollout, not of the vaccine but of the €750 billion EU recovery fund. She said governments must not dawdle in distributing the funds, referencing the more robust fiscal response of the United States.
Cautionary tale from China as stimulus dialed back China's CSI 300 Index has fallen more than 13% from its February highs, fueled in part by warnings from regulators of asset bubbles and the reining in of pandemic-fueled credit growth. If policymakers are to be believed, it will likely be a considerable period of time before most developed economies begin to dial back stimulus, but China's recent experience could be an omen that markets will face difficulties adjusting to life without a steady stream of stimulus.
Biden ups vaccination goal In his first press conference since taking office a little over two months ago, US President Joe Biden called for 200 million coronavirus vaccine doses to be administered in his administration's first 100 days instead of the 150 million he originally called for. According to the US Centers for Disease Control and Prevention, more than 14% of Americans are now fully vaccinated, while 26.3% have received at least one dose of the vaccine. An average of 2.5 million doses per day were administered in the past week. Three vaccines are now being distributed in the US, and the makers of a fourth, the AstraZeneca/Oxford University vaccine, are likely to seek emergency-use authorization soon. After dropping sharply since early January, confirmed cases have recently leveled off in the US.
QUICK HITS
The US Federal Reserve announced late this week that it will end restrictions on dividends and share repurchases for most banks from 30 June.
Amid a surge in special purpose acquisition company initial public offerings, the US Securities and Exchange Commission this week asked Wall Street firms to voluntarily submit information on deal fees, compliance, reporting and internal controls.
Fed Chair Jerome Powell said this week that the recent increase in bond yields has been an orderly process and is coming from very low levels. Any Fed policy changes will be made gradually and only after substantial progress toward inflation and full employment goals, he said.
Secretary of the Treasury Janet Yellen said a temporary surge in US government spending is needed in response to the pandemic but that the US must raise revenues longer term. Next week President Biden is expected to outline the next phase of his economic plan, which is expected to include tax hikes on corporations and upper-income Americans.
The United Kingdom, the European Union and Canada joined with the US in sanctioning China over human rights abuses against the Uyghur minority in Xinjiang province.
Turkish President Recep Tayyip Erdogan sacked the country's central bank chief after last week's interest rate hike. The firing prompted a sharp slide in the value of the Turkish lira.
Former US Secretary of the Treasury and advisor to Democratic presidents Larry Summers said the US is undertaking the least responsible macroeconomic policy in the past four decades.
The ECB boosted the pace of its bond buying by nearly half to try to convince the markets that it is serious about maintaining accommodative financing conditions. European sovereign yields fell on the news.
The US economy grew more quickly in the final quarter of 2020, revised government data show, expanding at a 4.3% annual rate, up from an earlier 4.1% estimate.
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