By Han Tan, Market Analyst at FXTM
Asian stocks are in the green, while US and European equity futures are pushing upwards on Friday. The dollar index is easing slightly after gaining five days out of the last six, allowing for some reprieve in gold and oil prices.
Although Thursday’s 7-year Treasury auction was met with a lacklustre response again, yields are still some 10 basis points below last week’s peak. Moderating bond yields this week have contributed to the relative calm in equity markets, with the VIX index now back in line with its long-term average around 20, after the brief midday spike on Thursday.
Moving closer to the way things were
Thursday saw market risk sentiment buoyed by the lower-than-expected US weekly initial jobs claims, while continuing claims dropped below the 4 million mark for the first time since the pandemic broke out.
US stocks also reacted positively to President Biden’s upward revision to his ambitious vaccination target, which now aims to administer 200 million doses by the end of April.
Markets have shown that investors’ optimism is predicated on the vaccine’s rollout reaching more of the population, forming the basis for the expected economic recovery. The rotation into cyclically sensitive sectors is testament to such hopes, while the euro’s declines against its major peers are proof of persisting concerns over the shambolic efforts of the EU’s vaccination rollout.
Having been the best-performing sector on the S&P 500 on Thursday, financial stocks are set to get another boost when US markets open Friday, after the Fed announced plans to lift the pandemic-induced restrictions over US banks’ dividend payouts and share buybacks.
This presents yet another sign that the worst of the pandemic is behind us, as the financial sector takes another significant stride back towards the world we once knew.
US personal income may influence risk appetite
Investors will be monitoring the February US personal income and spending data due to be released later Friday. Noting that this print is sandwiched between late December’s $600 stimulus checks and the $1400 payments just approved this month, both personal income and spending levels for February are expected to register declines.
Still, a better-than-expected reading may help ensure that US equities go into the weekend on a positive note.
Barring any negative surprises, the Dow Jones index is set to erase its midweek falls and avoid posting back-to-back weekly declines for the first time this year.
Investors must stay on their toes
Still, a fresh major catalyst is needed for risk assets to roar higher.
In the interim, market participants will just have to continue contending with major cross-currents affecting risk appetite.
From signs that Covid-19 cases are making a resurgence globally to simmering US-China tensions, amid the shifting expectations for the Fed’s policy outlook, the relative calm in markets could yet be upended by the realisation of such risks.
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