Daily Market Commentary 26th February 2021

US Bond Yields surged again overnight in the US, triggering a sell-off in equities, despite the dovish sentiment from the Federal Reserve. US Bond Yields shot up above 1.49% in the 10 year, as markets look forward to stronger growth and inflation in 2021. The economic data is supporting a recovery, in the post-pandemic world. US Durable Goods Orders jumped 3.4%, while GDP estimates growth at 4.1% for Q4. The Fed Chair was dovish in his testimony before the Senate Banking committee, maintaining QE Infinity for an extended period to stimulate growth and employment. Markets are brushing this aside and Bond Yields are surging. This has hit equities hard overnight, wiping out the previous sessions big gains and raising questions about capital investment and debt servicing costs.

The surge in Bond Yields sparked a rise globally, with interest rates rising in Europe and Australasia, spreading fear in global equity markets. The ‘blue-sky’ outlook, in the post-pandemic world, raises questions about the cost of investment capital to fuel the economic recovery and debt servicing costs for record high debt. The rising US Dollar pushed the resurgent GBP back to 1.4060, while the Yen traded 106.30.

The trade exposed commodity currencies had big rallies interrupted, with the AUD pulling back from 0.8000, while the NZD fell back below 0.7400. Interest rates are moving up locally as well, as economies improve and commodity prices surge. The NZD has enjoyed a big rally recently, but the rising reserve and alterations to the RBNZ remit regarding house prices, seem to have stalled the upward momentum.