Just as the rise in bond yields over the past two weeks has talked about financial markets, there is something different about how government debt responds to signs of an improving economy.
According to the BlackRock Investment Institute, a 1% rise in US breakeven inflation rates – a measure of market inflation expectations – has typically led to a 0.9% increase in ten-year treasury yields since 1998. But since March In 2020, break-even inflation rose by 1.2% and nominal yields rose by only 0.5%.
“We expect a strengthening economy, a tremendous fiscal momentum and rising inflation to further increase nominal returns this year, albeit less than in similar periods in the past. “We expect central banks to lean against any market concerns about rising debt levels and to keep interest rates low for the time being,” said the strategist for the world’s largest fund manager.
Christine Lagarde, president of the European Central Bank, said on Monday that the central bank is closely monitoring the rate of return, while Jerome Powell, chairwoman of the Federal Reserve, told the Senate Banking Committee on Tuesday that the rise in yields in a way is a declaration of confidence. That there will be a robust and complete economic recovery.
The BlackRock strategists have compared U.S. retail sales to recessions in the past. “The different nature of the COVID shock means that activity has resumed much faster than has been seen in recent business cycle recessions – and this implies extraordinarily high growth rates as a vaccine reopens,” they said.
BlackRock offers a view of a long-term strategic and 6-12 month tactical view. But for both equities and government bonds, they changed their strategic and tactical views to the same extent, citing the rollout of COVID-19 vaccine and U.S. fiscal stimulus. BlackRock said it was underweight government bonds “because their ability to act as portfolio ballast is diminished with yields near lower limits, and rising debt levels could ultimately pose a risk to the lower-rate regime.”
BlackRock has overweighted stocks. “We see a better outlook for earnings amid moderate valuations. The integration of climate change into our expected returns facilitates the attractiveness of developed market shares given the large weights of sectors such as technology and healthcare in benchmark indices, ”he said.
By region, BlackRock is overweight in the U.S. due to its exposure to technology and healthcare, with U.S. smallholdings targeting a cyclical upswing. BlackRock has become neutral from underweight on European equities, as there is room for the valuation gap to weaken as economic reform becomes more entrenched.
The buzz
Powell is taking his low-interest-rate narratives to the House Financial Services Committee, while two key officials, Governor Lael Brainard and Vice President Richard Clarida, are due to deliver speeches. The US economic calendar also includes new home sales, while Germany predicted a stronger increase in gross domestic product in the fourth quarter.
According to the Japanese newspaper Nikkei, President Joe Biden must sign an executive order to build semiconductor, electric vehicle batteries and rare earth metals supply chains with Taiwan, Japan, South Korea and Australia. The Washington Post reports Biden will sign the order Wednesday.
The Food and Drug Administration said Johnson & Johnson’s JNJ,
single-dose coronavirus vaccine was safe and effective, which set the stage for the impending approval.
Cathie Wood’s ARK Invest funds added Tesla TSLA of $ 168 million,
according to its website Tuesday, after the electric vehicle manufacturer closed below $ 700.
Payment Service Square SQ,
fell 4% after announcing a new $ 170 million investment in bitcoin BTCUSD,
because it exceeded the fourth-quarter revenue estimate better than expected.
PRA Health Sciences PRAH,
rose 25% in the pre-traded trade after agreeing to be bought by Icon ICLR,
in a $ 12 billion cash and stock transaction.
Shares of Bausch Health Companies BHC,
reached a five-year high in pre-negotiations on Wednesday after the pharmaceutical and medical equipment company said it had reached an agreement with billionaire activist Carl Icahn, adding two of its nominees to the board.
GameStop GME,
the video game retailer, has announced that its chief financial officer has resigned. Forbes reports that the board has lost confidence in Jim Bell’s ability to switch to an e-commerce focus. In an interview with Barstool Sports Founder Dave Portnoy, Robinhood CEO Vlad Tenev defends Vlad Tenev handling his company’s GameStop saga.
The markets
US futures contracts ES00,
NQ00,
lost early gains and traded modestly lower. On Tuesday, the S&P 500 SPX,
ends higher after five consecutive losses.
The yield on the ten-year treasury TMUBMUSD10Y,
increased to 1.41%. Hong Kong holds HSI,
declined after the government announced it would increase the stamp duty on stock trading.
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According to a new study, it is possible to create an almost 100% accurate brain-computer interface for wheelchairs.
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