What has happened
With the Federal Reserve’s communication blackout covering all of last week we expected an interesting period. The net result of days of large swings were US and European indices rallying strongly with US Technology outperforming the broader US index after a tough few weeks.
COVID latest
A third wave of COVID cases is being seen in continental Europe with Italy going into a partial lockdown from today. Week on week, cases have risen in Spain, Italy, France and Germany leading to concerns over increased restrictions but also putting more political pressure on the vaccine rollout programme which continues to lag the US and UK. AstraZeneca released a report over the weekend saying that it has seen no evidence of increased pulmonary embolism, DVT or thrombocytopenia risk from the vaccine. Despite this Ireland temporarily suspended the usage of the AstraZeneca vaccine as the EU works to broaden its supply options for the programme.
Federal Reserve
This week sees the long awaited FOMC meeting which is probably the most important central bank meeting since the depths of the crisis in March and April last year. The key question for the Fed on Wednesday, and indeed at the Bank of England’s meeting on Thursday, is how the bank should respond to the recent sharp rise in yields. For context the US 10-year treasury yield is up around 0.6% since the last meeting in January albeit now only trading at levels seen in the lows of 2019. Investors have become increasingly impatient for action from the Fed and soothing words are unlikely to be enough. We expect the Fed to upgrade their economic projections, in part due to the fiscal stimulus now agreed, but for them to push back against expectations that this will lead to sustained inflationary pressures. Whether Fed Chair Powell follows this up with a rough plan of how the bank would deal with continued rises in yields remains to be seen. The central bank chair has a difficult balance to play, he will want some inflation down the line but not enough to cause interest expectations to rise and snuff out the recovery.
What does Expat Wealth Adviser think
The Fed, and to a lesser extend Bank of England, meeting will be pivotal this week and will set the direction of yields for the coming months. The direction of yields will control market leadership as well as play into broader market sentiment. Should the Fed appear to tacitly welcome rising bond yields as a positive economic indicator, we could see 10 year yields move towards 2% in fairly short order.
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World GBP | 0.3% | 1.9% | -1.4% | 2.7% | |
| MSCI UK All Cap GBP | 0.1% | 1.8% | 3.3% | 5.6% | |
| MSCI USA GBP | 0.4% | 2.1% | -1.0% | 2.9% | |
| MSCI EMU GBP | -0.1% | 3.6% | 0.9% | 2.8% | |
| MSCI AC Asia ex Japan GBP | -0.5% | -0.6% | -6.5% | 3.3% | |
| MSCI Japan GBP | 1.4% | 1.4% | -3.6% | 0.4% | |
| MSCI Emerging Markets GBP | -0.3% | 0.0% | -6.0% | 2.7% | |
| MSCI AC World IT GBP | -0.2% | 1.3% | -6.5% | -0.7% | |
| MSCI AC World Healthcare GBP | 0.2% | 1.1% | -5.2% | -2.9% | |
| Barclays Sterling Gilts GBP | -1.0% | -0.7% | -3.1% | -7.3% | |
| Barclays Sterling Corps GBP | -0.6% | -0.5% | -2.4% | -4.5% | |
| WTI Oil GBP | -0.3% | -1.4% | 9.8% | 32.6% | |
| Dollar per Sterling | -0.5% | 0.6% | 0.5% | 1.8% | |
| Euro per Sterling | -0.2% | 0.3% | 1.9% | 4.1% | |
| MSCI PIMFA Income | 0.0% | 1.0% | 0.0% | 1.2% | |
| MSCI PIMFA Balanced | 0.1% | 1.2% | 0.0% | 1.8% | |
| MSCI PIMFA Growth | 0.3% | 1.6% | 0.0% | 2.7% | |
Source: Bloomberg as at 15/03/2021. TR denotes Net Total Return
