Hints of distressed selling seen in stock markets this week

Dubai: Even as markets saw an uptick in trading activity, with momentum building in technology and growth-related stocks, investors will cautiously monitor more economic data amid a raging pandemic.

It’s a busy week ahead on the global economic calendar, with 73 economic statistic figures in focus in the week ending March 5. In the week prior, 52 stats had been in focus.

US stock market focus will shift to the weekly US jobless claim figures on Thursday ahead of the US Labour Department’s non-farm payroll report, to gage how the world’s top economy is seen reacting to the prevalent COVID-19 health crisis.

US jobs data in focus

Analysts are of the opinion that investors should be prepared for how stocks markets may respond to the February labour report set to release at the end of next week, as these factors are tracked to weigh how economies in the rest of the world will stage a recovery post-pandemic.

So with US employment report being a highlight for global markets in the week ahead, it is expected to show 218,000 jobs added, or four times as many jobs were created in February than in January.

Stocks under pressure

Stocks fell last week, as both the S&P and the Dow Jones Industrial Average shed roughly 2 per cent. The indexes are still in positive territory for the year, but gains are at less than 2 per cent in 2021.

In the US, the Dow Jones ended last week down 1.78 per cent, while the S&P 500 dropped 2.45 per cent. The tech-heavy Nasdaq suffered the most last week after declining almost 5 per cent, despite Friday’s rise driven by a rebound in Big Tech stocks.

US bond yields rise rapidly

A rapid run-up in interest rates this month caught investors by surprise, with the benchmark 10-year yield, which influences mortgages and other loans in the US, was at 1.5 per cent Friday afternoon, about 15 basis points, above its level just a week earlier.

Analysts add that the rapid rise in bond yields has made stocks skittish, and that could be a factor in the week ahead, if interest rates continue to respond to improving data.

After a big surge Thursday, the 10-year yield traded on both sides of 1.50%, which is the consensus view of where yields would be at the end of the year, not the beginning.

US Fed Chair Powell to speak

US Federal Reserve Chairman Jerome Powell speaks on the economy Thursday, and market strategists are expecting the run-up in yields to be addressed.

Bond investors trimming their holdings are betting that the US Federal Reserve could change its mind and raise the federal funds rate from near-zero levels as the economy rebounds from the pandemic-induced recession.

The state of tug-of-war that is seen between stocks and rising bond yields could set the tone for the coming week, particularly if positive economic data continues to push bond yields higher.

Earnings season continues

Earnings season continues in the week ahead, with several top stocks set to announce fresh operating results.

Analysts look at the metrics that could send shares of retail giants Costco, and Target moving over the next few trading days. Barclays kicks off the reporting season for Britain’s banks when it announces 2020 results on February 18.

Lenders with investment banking arms, including Barclays and HSBC, could report a strong 2020, as they benefited from pandemic-induced market volatility. Analysts will question banks on when they will restore largely abandoned profitability targets and may renew calls for dividends to be resumed.

For now, markets to rally

Bonds have a track record of getting it right when it comes to the state of the global economy, so yields are tracked closely worldwide.

While higher bond yields could hurt at some point, for now equity markets are charging on, not least in Asia, where Japan’s Nikkei is at three-decade highs and Chinese blue-chip stocks a whisker off 2007 peaks. European and US shares have rallied 50 per cent and 80 per cent from March 2020 lows.

Markets are evidently supported by abundant monetary and fiscal stimulus, however if vaccine rollouts and falling COVID-19 cases unleash pent-up consumer demand, economic recovery will follow.