Global Markets Update – Monday 22 March 2021

Rebounding bank rates

Global stocks struggled to make progress as bond yields tracked higher.


The FTSE 100 slid 0.8% over the week.

The Bank of England predicted that the UK economy would rebound this year, as lockdown measures were eased and government support for jobs continued. However, the Bank noted that the economic outlook remains “unusually uncertain” and that the recovery still depended on the “evolution of the pandemic” and measures to protect public health.

UK consumer confidence rose to the highest level in March since the start of the first lockdown in 2020, with consumers optimistic over the planned reopening of the economy, the Budget’s renewed support for workers and businesses and the rapid vaccine rollout. The improved reading in March was the sharpest monthly jump in almost a decade.


The S&P 500 slipped 0.6% over the week, while the tech-heavy Nasdaq lost 0.8%.

The Federal Reserve raised its forecast for economic growth in 2021. It now forecasts an average growth rate of 6.5%, up from the rate 4.2% it predicted in December, due to Joe Biden’s massive fiscal stimulus programme and the ongoing vaccine rollout success. The unemployment rate is now forecast to fall to 4.5% by the end of the year, compared with the previous estimate of 5%, while the core personal consumption expenditure index, the Fed’s preferred measure of inflation, is expected to rise to 2.2%, above the Fed’s 2% target, before falling back to 2% in 2022 and 2.1% in 2023. Nevertheless, the dot plot of future interest rates projections indicated policymakers expect to keep interest rates close to zero until at least 2024. The Fed also reiterated that it would continue to buy bonds at a rate of $120bn per month until “substantial further progress” was made towards its goals.


The FTSEurofirst 300 inched higher by 0.1% over the week.

Many EU countries tightened restrictions amid signs that a third wave of COVID-19 was taking hold. France imposed a lockdown on Paris and surrounding regions, with Italy also reimposing lockdowns. Germany is due to decide soon on whether to extend restrictions beyond the end of March.

EU president Ursula von der Leyen said the bloc was considering “all options” to ensure Europeans are vaccinated, warning that the EU is ready to introduce emergency controls on COVID-19 vaccine exports if needed. The week saw a raft of EU countries temporarily suspend use of the Oxford/AstraZeneca vaccine amid concerns over blood clots. Most countries later cleared the vaccine for use following an investigation by the EMA.


The Nikkei 225 gained 0.3% over the week.

The Bank of Japan scrapped its pledge to buy an average of ¥6tn a year in equities, moving away from aggressive monetary stimulus in favour of a more “sustainable” policy rather than trying to target 2% inflation. The Bank said it would allow more fluctuation in 10-year bond yields; while it will continue to peg 10-year bond yields at “around zero”, they will be allowed to fluctuate by +/-0.25% rather than +/-0.2%. The BoJ also launched a scheme to subsidise bank profits so they did not suffer from negative interest rates; this should make the option of further rate cuts below zero more credible.

Pacific Basin

China’s industrial output grew by a stronger-than-expected 35.1% in January and February compared to the same months last year which were in the midst of the COVID-19 slowdown.  Retail sales also beat forecasts, climbing 33.8% over the same period.

New Zealand’s economy contracted 1.0% in the final quarter of 2020, raising the prospect of a double-dip recession. Tourism has been hit badly by the international border closure, while construction activity slowed in the quarter to December, following a record expansion in the previous three months after one of the world’s toughest Covid-19 lockdowns was lifted.

Emerging Markets

Turkey’s president Recep Tayyip Erdogan fired central bank governor Naci Agbal just three months into his term and replaced him with an academic who has lobbied for lower interest rates. Since his appointment in November, Agbal had increased the benchmark interest rate by a cumulative 875 bps to 19%, including a 200 bps increase in the past week. The news is likely to erode hopes among investors that the bank would assert its independence from the president’s wishes to keep interest rates low and is likely to heap more downward pressure on the lira.

Russia’s central bank unexpectedly lifted interest rates for the first time in more than two years, citing risks from rising inflation and geopolitical threats. The move took interest rates to 4.5% from 4.25%. The central bank governor also suggested that further rate rises were on the cards, saying the country was returning to a “neutral” rate of 5 to 6%, although “uncertainties” may stop it from reaching that target by the end of the year. Inflation hit 5.8%, its highest level in more than four years, during the week.

Brazil’s central bank raised its key interest rate by 75 bps to 2.75% from an all-time low of 2% and signalled another increase is likely given inflationary concerns. Policymakers indicated they would lift rates by the same amount again at its next meeting in May “unless there is a significant change in inflation projections or in the balance of risks”. Inflation rose past 5% in February for the first time in four years.


The yield on the 10-year US Treasury bond briefly topped 1.75%, its highest level since January 2020, before closing the week at 1.71%.

The yield on the 10-year German Bund closed the week at -0.29%. while the 10-year UK Gilt yield ended at 0.84%.


Oil prices slumped after US inventories rose unexpectedly for a fourth consecutive week, indicating soft demand. Brent crude briefly fell back low $63 a barrel.

Palladium jumped to its highest level since February 2020 after the Russian miner Norilsk Nickel cut its forecast for output following flooding at two of its mines.

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Image by Gerd Altmann from Pixabay