Written by: Sid Mohapatra
To all global macro enthusiasts, March 23rd, 2020 marks the lows of the pandemic across risk markets globally and also the end of the shortest bear market ever witnessed in financial history.
We have observed a stimulus-fueled, debt-laden yet swift recovery in asset prices across the board as the prospects of an economic recovery were being priced in. Further, vaccination rollouts along with the promise of things getting back to normal have lifted yields higher, confirming expectations of investors and other market participants that the second year of the recovery will continue to be bullish and see the recovery have legs to the rally.
This narrative is reflective in the cyclical, recovery-based indexes vs tech-heavy benchmarks that continue to lag in this period of economic recovery. We saw the TSX approach the 19,000 mark as well as the Dow cross 33,000 while the Nasdaq is seeing pain amidst this sector rotation.
Further, from a monetary policy perspective, we observed synchronized easing across different markets wherein central bankers unanimously agreed that accommodative monetary stance is the need of the hour and they drove interest rates to 0/negative to provide the platform for a rebound.
However, we are now seeing an asynchronous exit or attempts to normalize interest rates. In the case of the US, the Federal Reserve is backed into the corner where the markets will force their hand with a sharp uptick in bond yields. But stepping back, we will see higher rates going forward but not everyone will raise by the same extent at the same time.
The TSX finished at an unchanged 18,846 but holding on to an impressive 8.1% this week. S&P 500 shed 80bps this week closing at 3,913 up almost 4.3% on a YTD basis. Commodities cooled off this week with WTI Crude closing at $61.49 a barrel down by as much as 6.3%.