Insights

WuRevue Week Ending 3/19/2021

 

Top News:

03/15: Fresh off their success in passing the $1.9T stimulus plan, Democrats are reportedly looking to raise taxes on corporations and higher income brackets, as well as introduce a new job and infrastructure bill.  Relative to depressed levels of the same period last year, China sustained recovery during the first two months of this year, leading some to question whether authorities may tighten policy to rein in lofty valuations.

 

03/16: Ahead of Wednesday’s Fed decision, investors booked some profits from recent highs, following some disappointing economic releases (here, here).  One industry barometer showed a slight tapering-off in the sizzling single-home market in early March.

 

03/17: Investors took comfort in the Fed’s dovish stance to maintain an accommodative monetary stance through 2023.  The Fed also revised upward its 2021 US GDP growth estimate to 6.5% from 4.2%.  Higher lumber costs and mortgage rates appeared to have dented housing starts in February.  One sell-side firm raised its GDP growth forecast for China to 9% in 2021.  Despite extended production cuts by OPEC+, the IEA said oil inventories were still 110 million barrels above their level a year ago.

 

03/18: As bond yields surged above pre-pandemic levels, owing to the Fed’s perceived tolerance of near-term inflation, investors renewed selling in stocks. The Fed’s deliberate decision in letting the economy run hot was corroborated by the worsened weekly unemployment claims report. Following the Fed’s lead, ECB President Lagarde also stated her belief that upticks in inflation are “blips.” In lockstep with these two major peers, the Bank of England dampened speculations of an earlier normalization in monetary policy as well.

 

03/19:  The Fed is ending a temporary exemption that affects a key bank capital measure, fueling further volatility in Treasurys. High-level talks between the US and China got off to a rocky start, diminishing already subdued expectations. Bank of Japan fine-tuned its monetary toolkit by allowing bond yields to fluctuate in a wider band around its 0% target, while ending its controversial annual purchases of stocks deemed to have distorted markets.

 

 

Heard on the Street:

“The biggest thing that Powell has said is the Fed is not fearful of the inflation boogeyman.” 

— Michael Arone, chief investment strategist at State Street Global Advisors, as quoted by CNBC on 03/17/2021

 

“Sustainable inflation will occur only if a lot of excellent outcomes materialize: reopening the economy fully, employment gains that spread to more parts of the workforce and economic growth at levels above recent history for an extended period. In many ways all that sounds wonderful.”

— Steve Wyett, chief investment strategist at BOK Financial., as quoted by MarketWatch on 03/19/2021

 

 

Longer Game:

While financial institutions and investors (e.g., here, here & here) have begun accepting bitcoins as more than a fad, there remains the critical debate over whether it can be an asset class with such limited liquidity, and how best to value cryptocurrencies beyond the “Tinkerbell Effect.”

 

 

Bonus Item:

As investors parse various data for signs of continuing economic recovery in the US, one research firm recently suggested consumer demand for leisure and travel may be on the mend, based upon Google Trends search volume.