The shakeup in stocks prompted by the rapid run-up in Treasury yields looks set to continue to be a major focus for markets in the coming week, particularly if stronger economic data push Treasury yields even higher. Investors will be focusing on Friday’s employment report, which is expected to show that virus restrictions kept a lid on jobs growth in February. Appearances by several Federal Reserve speakers, including Chairman Jerome Powell, will also be closely watched. The OPEC+ coalition is expected to moderately increase oil output at its meeting on Thursday, with prices near 13-month highs. In Europe, the UK budget is due on Wednesday, while eurozone economic data will show how the economy is coping with ongoing pandemic restrictions. Here’s what you need to know to start your week.
- Tug of war between stocks, rising bond yields
The shift into energy, financial and other stocks set to benefit from the economic reopening has accelerated, while rapidly climbing Treasury yields are pressuring tech stocks that have led market gains for years.
Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when interest rates go up.
A dovish-sounding Fed together with expectations for more stimulus has propelled yields higher and fueled concerns about inflation and the two-track market looks set to continue, at least in the short team.
Meanwhile, earnings season is wrapping up, but retailers will still be reporting, with Target (NYSE: TGT), Kohl’s (NYSE:KSS), and Nordstrom (NYSE: JWN) due to publish figures on Tuesday, followed by Costco (NASDAQ: COST) on Thursday.
- February jobs report
With President Joe Biden’s $1.9 trillion coronavirus relief package advancing to the Senate Friday’s nonfarm payrolls report for February will show how the recovery in the labor market is faring.
Government data late last week showed that initial jobless claims unexpectedly declined to their lowest in three months, indicating that the slowing infection rate is allowing the labor market to gain some traction. Retail sales also rebounded in January.
Economists are expecting the U.S. economy to have created 165,000 new jobs in February, after January’s 49,000 increase. But the winter storms that swept across the South may complicate the picture.
- Powell speech
With the rapid climb in Treasury yields roiling the stock market investors may be hoping for Fed officials to address the selloff in Treasuries.
Fed Chair Jerome Powell is set to speak about the economy at an online event hosted by the Wall Street Journal on Thursday. So far there has been little sign of anxiety among Fed officials about higher Treasury yields.
Last week Powell said the move higher was the result of a stronger economy but added that the rate of economic recovery has slowed in recent months and reiterated that monetary policy will remain easy for some time to come.
Other Fed official set to make appearances include New York Fed President John Williams, Fed Governor Lael Brainard, Atlanta Fed President Raphael Bostic, San Francisco Fed President Mary Daly, Philadelphia Fed President Patrick Harker and Chicago Fed President Charles Evans.
- OPEC+ meeting
With oil prices at 13-month highs, the OPEC+ producers’ meeting on Thursday is expected to discuss increasing production from April.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, slashed output by 9.7 million barrels per day last year as the pandemic ravaged global demand.
OPEC+ sources reckon a 500,000 bpd output increase looks possible without causing an inventory build-up, as economies recover.
Russia is keen to raise supply. Saudi Arabia’s voluntary 1 million bpd cut also expires in March, and that supply may return from April.
- UK budget, eurozone data
In the UK, finance minister Rishi Sunak will pledge more budget spending on Wednesday, but it may be the last bit of pandemic-related support he offers. The budget is expected to pile more borrowing on top of nearly 300 billion pounds ($418 billion) of COVID spending and tax cuts.
The budget plan will be closely watched as it will be one of the largest factors determining the pace of the economic recovery.
Meanwhile, in the eurozone, data on inflation, PMIs, retail sales and unemployment will show how the economy is faring ahead of the European Central Bank’s March meeting.
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