The Global Response to Rising Yields

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What’s in Today’s Report:

  • Monitoring the Response to Rising Yields
  • ISM Manufacturing Index Takeaways

Stock futures are trading with mild losses this morning as yesterday’s gains are digested amid cautious comments out of China overnight and mixed economic data in the EU.

Guo Shuqing, a top Chinese banking regulator, said overnight that the divergence between asset rallies (he referred to them as bubbles) and economic growth in the U.S. and EU will result in corrections “sooner or later” which weighed on Asian stocks.

German Retail Sales missed expectations however a key European inflation gauge, the HICP, was in line with estimates, leaving dovish policy expectations for the ECB largely intact.

Looking into today’s session, there is just one economic data point: Motor Vehicle Sales (E: 16.4M) which should not move markets.

That will leave market focus on today’s two Fed speakers: Brainard (1:00 p.m. ET) and Daly (2:00 p.m. ET) as the market looks for further confirmation that the Fed remains unanimously committed to extremely accommodative policy for the foreseeable future.

Outside of economic data and Fed chatter, the bond market remains a major factor for equity market trading right now as if there is another disorderly spike in Treasury yields, it is safe to expect more volatility in the broader stock market, specifically big name tech companies.

Harder to Rally?

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What’s in Today’s Report:

  • Harder to Rally?
  • Weekly Market Preview:  All About Rising Yields (and Central Bank Reaction)
  • Weekly Economic Cheat Sheet:  A Busy and Important Week of Data, and Powell Q&A on Thursday

Futures are sharply higher thanks to falling bond yields combined with progress on stimulus and vaccine distribution.

The Reserve Bank of Australia surprised markets and announced it was buying $3 billion of longer-dated bonds as global central banks ramp up the response to rising yields, and that is the main reason we’re seeing global bond yields (including Treasuries) lower this morning.

On stimulus, the House passed the $1.9 trillion stimulus bill while the FDA approved JNJ’s single-dose COVID vaccine.  Both events were already priced into stocks, however, so they aren’t causing this morning’s rally (again that’s based on falling bond yields).

Today focus will be on data and Fed speak, as we get the  ISM Manufacturing PMI (E: 58.9) and two Fed speakers this morning: Williams (9:00 a.m. ET) and Brainard (9:05 a.m. ET).  As was the case last week, expect stocks to move inversely to yields, and if the data is solid (but not too good) and the Fed speakers dovish, expect yields to fall further and an extension of this morning’s rally.  

Sevens Report Co-Editor Quoted in MarketWatch on February 23, 2021

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The slight uptick in the U.S. dollar acted as a “modest headwind” on precious metals in Tuesday’s session, but there was a more notable correlation between gold…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Barron’s on February 24, 2021

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“With day one behind us, there are no surprises expected in today’s hearings…[However,] how Powell responds to any specific questions about the pace of the recent rise in…” writes the Sevens Report’s Tom Essaye. Click here to read the full article.

Sevens Report Co-editor Tyler Richey Quoted in MarketWatch on February 23, 2021

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The slight uptick in the U.S. dollar acted as a “modest headwind on precious metals…” but there was a more notable correlation between gold and Treasury note yields, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Powell Testimony Takeaways

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What’s in Today’s Report:

  • Powell Testimony Takeaways
  • Chart: RSP vs. SPY

Stock futures are little changed this morning while bond markets were largely steady overnight as investors digest yesterday’s dovish comments from Fed Chair Powell and look ahead to his testimony before the House today.

Economically, German GDP was slightly better than expected while the French Business Climate Indicator narrowly missed estimates however neither report moved markets as trader focus is on central bank policy this week.

Today, there is just one economic report to watch: New Home Sales (E: 855K) before investors will settle in for another day of Humphrey-Hawkins Testimony by Fed Chair Powell which begins around 10:00 a.m. ET.

With day one behind us, there are no surprises expected in today’s hearings however, how Powell responds to any specific questions about the pace of the recent rise in yields could impact the bond markets, and if yields rise to new highs, expect more selling pressure on big tech names to weigh down the broader equity indexes.

Tom Essaye Interviewed with Yahoo Finance on February 23, 2021

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Tom Essaye, Sevens Report Research founder and president, joins Yahoo Finance’s Alexis Christoforous to discuss the rise in yields and concerns over inflation. Click here to watch the full interview.

Tom Essaye Interview Shared on the Armenian Reporter on February 23, 2021

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Tom Essaye, Sevens Report Research founder and president, joins Yahoo Finance’s Alexis Christoforous to discuss the rise in yields, concerns over inflation and the outlook for markets. Click here to watch the full interview.

Sevens Report Quoted in Forex Crunch on February 22, 2021

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“We look at it not just from an absolute level of yields, but also the pace of increase,” Tom Essaye, founder of Sevens Report, wrote in a Feb. 17 note, according to S&P Global Market Intelligence, adding that, “if yields rise too quickly (and the 10 bps/day rallies continue)…” Click here to read the full article.

Sevens Report Quoted in MarketWatch on February 22, 2021

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March copper HGH21, 0.86% climbed by 1.6% to $4.141 a pound. Copper futures gained nearly 7.6% last week “with the upside move accelerating into the weekend as traders bet on sustainably strong demand given…” analysts at Sevens Report Research wrote in a Monday newsletter. Click here to read the full article.