February was a little bit slow about incoming news tsunami relative to January but resuming treasury rate increase becomes problematic for the markets. Inflationary data and inflation expectations surge, US data related to output such as retail sales, durable goods orders announced well above expectations, possibly because of the government paychecks. US job markets stayed weak. In the euro area, CPI and PPI data finally showed signs of life.
What Happened In February?
The Return of the Super Mario: Former ECB chair “Super” Mario Draghi, heed the calls and accepted the president role and the take vote of confidence from the chaotic Italian congress. Draghi has a colorful career which he shines mostly on crisis management. Italian markets rejoice with this news as Italian bonds showed better performance.
Bullard’s Speech: St. Lois FED chair Bullard wreaks havoc on already shaky markets by saying that he expected inflation to rise this year. Despite saying he preferred overshooting the %2 targets to the upside, his speech marked the near high point for Nasdaq and breaking point for 10-year bonds.
Powell’s Senate Testimony: Powell tries the ease the market at his testimony. “FED will continue to support the economy until reaching full employment and above %2 inflation targets,” he repeats.
Central Banks: Central Banks somewhat preferred “stop and watch” mode in this month. RBNZ, BOE, CBRT all avoided making big moves. RBA was an exception and increase the bond-buying program to achieve the bond rate target but still came short.
Vaccine News: Vaccinations all around the world continued at a rapid pace and increased more than %150 since it begin. Total applied doses reach above 218 million. US (66 million) and China (40 million) were the countries that most applied. But probably the best news came from Israel. According to a research on Pfizer’s vaccine, a vaccinated person’s virus transference rate drops more than %80. If other vaccines are found showing nearly the same performance, “Covid-19 will stay forever” bad scenario most likely not come to pass.
Rising Oil Price Supporting Inflationary Pressures:
As the economies starting to recover, so is the oil. With the expectations of a fast recovery and Texas power outage, Brent Oil surged nearly to 1-year highs. Constantly rising oil prices start to push global inflation higher.
Taper Tantrum Fears Returned to Markets:
As inflation and inflation expectations rise, investors suddenly start to remember the 2013 taper tantrum. In 2013, Ben Bernanke was announced the slowing down of asset purchases. With this news market fell and the dollar surged in the coming months. With the fear of another taper tantrum, 10-year rates surging faster, more than %31 just in February.
What to Expect From March?
Fiscal Stimulus Talks: Biden’s stimulus package has passed by the house but without any bipartisan support. Senate will be more difficult and including the minimum wage in the bill is decreasing the odds of passing. There will be a lot of talk about stimulus and the markets may swing with the news throughout the month.
Tax Increase: Janet Yellen, talked about Biden’s plan rising the corporate tax to %28 and increasing the capital gains tax in the future. As it seems it will not be in the near future but the possibility of the increasing taxes that maybe have the most effect on the stock markets may slow the bulls down a bit if tax talks continue.
Tight restrictions slowed down the daily new cases but in recent days trend turned flat. Some countries thinking about easing the restrictions in March. If that happens, another small wave may be seen at the end of March.
Central Banks: March will be a more active month for central banks. The first RBA meeting will be on March 2, ECB on March 11, FED on March 17, BOE and CBRT on March 18, BOJ on March 19. Markets are not waiting for any big moves from the banks, for now. BOJ will review all of their programs, FED may try to ease fears of another taper tantrum, CBRT will have to decide how to combat rising inflation and surging USDTRY.
The dollar index had started an uptrend every time net positioning has been this negative. Euro net positions are at near the all-time high and dollar index positions are at the lowest for more than ten years. At the same time dollar index is trying to break and hold above bullish wedge formation. Technical-wise, it’s a major buy signal. But a lot of fundamentals still supporting the euro against the dollar, which is %57.6 of the dollar index.
89-90 zone will be a support zone for the dollar index and 92.150 can be followed as major resistance in March.
Gold is below the key long-term support 1765 that we talked about in our earlier post. ETFs’ fast selling is pressuring the bullion to the downside. 1765 may become the key point for Gold in March. If the price stays below this level, down moves may extend to near 1665. Above 1765, the upper line of the Bearish Trend Channel, 1835 must be broken for further increase in price.
EURUSD’s rise is slowing down as inflation worries increase. 1.2170-1.22 zone stays strong for upward moves and 1.20 is stays strong for downward moves. This key resistance and support level may determine the direction of EURUSD in March. Below 1.20, 200-day moving average can be followed as target. Above 1.2170-1.22 zone, recent top 1.2350 can become the next resistance.
Nasdaq breaks the white uptrend line and facing serious downward pressures. But this may be another bear trap. At the point “A”, Nasdaq breaks that day’s trend but reversed from the support of an earlier top. 12.440 can be a good point for that kind of reverse. If Nasdaq breaks 12.440 too, downward pressures may increase further.