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Last week stocks came under pressure from rising bond yields, as a rates selloff that has been bubbling under the surface since last November gathered steam. US 10-year rates jumped above 1.6% at one stage, their highest in a year, hitting stocks that have been used to ultra-low rates. The FTSE 100 recorded its biggest single day fall since October. By the weekend there had been some paring of losses in the US with the Nasdaq rising on Friday even as the broad S&P 500 declined again, and the 10-year benchmark returned to the 1.4% handle. In his annual letter to investors, Warren Buffet warned that fixed income investors face a “bleak future” as “bonds are not the place to be these days”. 


The Fed has signalled it’s comfortable with what’s going on, which only makes it more likely that the bond market is going to test its resolve. However the Reserve Bank of Australia is already stepping in and on Monday said it will buy more than $3 billion of longer-dated bonds, after announcing a surprise boost to purchases of three-year paper last week. Yields declined sharply, with the 10-year note declining from almost 1.9% to a low of 1.6%, as the central bank said it would double bond purchases as part of a regular operation. The RBA move helped to keep rates calm on Monday but you start to wonder if the genie is out of the bottle now.


Stock markets in Europe opened a lot firmer on Monday partly as a reaction to Friday’s big fall, partly with ‘vaccine optimism’ again a factor as the US regulators approved the Johnson & Johnson single-shot vaccine. The House of Representatives passed Biden’s $1.9 trillion stimulus package over the weekend, and the bill now heads to the Senate for debate. Democrats have the slimmest of majorities, and attention will focus on the likes of Joe Manchin, the West Virgina Senator who has become the kingmaker as far as Democrats are concerned. He has previously opposed direct payments, but since suggested he would be willing to back them so long as they are targeted at those in need. A generous fiscal package will almost certainly be passed, nevertheless. 


Shares in housebuilders rose strongly to the top of the FTSE 100 on reports the chancellor is set to unveil fresh support for first-time buyers. A mortgage guarantee scheme will be launched, bringing back 95% deals. This will underpin confidence in the housing market, which is inextricably linked to confidence in the broader economy. It should also be a big boon for the housebuilders. Taylor Wimpey, Barratt Developments, Berkeley Group and Persimmon all climbed around 4-6% in early trade on Monday. IAG rallied over 4% as hopes grow of a speedier reopening of international travel. 


In FX, the crash in the Australian dollar has eased with AUDUSD bouncing off the 0.77 region. Still, it’s down 3% or so in the last couple of sessions. Sterling was a little firmer but remains under $1.40 after the exhaustion gap last week. The latest CFTC report shows aggressive long positioning in sterling, with net long GBP rising to 31k in the week to Feb 23rd from 22.2k in the prior week. 


Oil remains supported ahead of this week’s OPEC+ meeting. Sources indicate the cartel will increase output by 1.6m bpd from April as pressures mounts to open the spigots as prices have recovered. Bitcoin was steady around $47,000. Gold bounced after touching its weakest since last June on Friday. Prices advanced to $1,760 after dipping to $1,717 following the breach of the Nov 30th support at $1,763.  

Gold bounced after touching its weakest since last June on Friday.

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