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Dollar rises despite drop in yields; data, lockdowns weigh on stocks

Stocks and oil prices fell on Friday pressured by intensifying lockdowns and weak U.S. retail sales data, while the dollar was on track to post its strongest week in over two months.

U.S. bond yields and stocks had risen recently partly on the back of expectations of the rollout of coronavirus vaccines and on a massive stimulus plan by the incoming Democratic administration. President-elect Joe Biden on Thursday unveiled a $1.9 trillion fiscal plan.

But vaccinations have been slower to administer than expected and the prospect of stricter lockdowns in France and Germany, as well as a resurgence of COVID-19 cases in China, weighed on market sentiment.

“I feel that after all the optimism regarding vaccines, we are now living the reality of a very slow rollout, which is weighing heavily on business activity,” said Juan Perez, senior currency trader at Tempus Inc in Washington.

“Until we have more guarantees on the medical front, markets will not continue to flourish despite whatever financial aid may be on the way,” Perez said.

Stocks fell but remained close to recent record highs, with investors also digesting the prospect of rising taxes to pay for the plan.

 

10-year Treasury yield falls below 1.1% after weaker-than-expected retail sales

The yield on the benchmark 10-year Treasury note dipped 3 basis points to 1.096% , while the yield on the 30-year Treasury bond fell 4 basis points to 1.838%. Yields move inversely to prices.

Yields were also pressured lower by a weaker than expected reading in U.S. retail sales.

The Commerce Department said on Friday retail sales fell 0.7% in December, closing out 2020 on a sour note. Economist surveyed by Dow Jones expecting a decline of 0.1% in December.

Excluding automobiles, gasoline, building materials and food services, retail sales tumbled 1.4% last month after a downwardly revised 1.3% decline in November.

The weaker-than-expected retail sales data following an unexpected jump in weekly jobless claims. Labor Department said Thursday showed first-time unemployment insurance claims in the U.S. surged to 965,000 last week. This was more than Wall Street estimates of 800,000 claims, signaling a further slowdown in the U.S. jobs market due to pandemic public health restrictions.

 

“This morning’s disappointing retail sales figures reinforced the idea that more stimulus will be needed,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.

U.S. 10-year notes last rose 11/32 in price to yield 1.092%, from 1.129% late on Thursday. Despite the weekly decline in the benchmark yield, it was set to close a second week above 1%, a streak not seen since before the lockdowns took hold.

The dollar index rose 0.458%, with the euro down 0.55% to $1.2089, while Sterling was last trading at $1.3594, down 0.68% on the day.

The Japanese yen weakened 0.03% versus the greenback at 103.83 per dollar.

Bitcoin last fell 8.75% to $35,710.80.

 

The pound is a ‘screaming buy’ if it falls to $1.30, strategist says

A near-term fall in the British pound would offer investors a clear buying opportunity, according to one strategist, who said the currency was set to get a boost next year as a result of the U.K. leaving the European Union.

Crossbridge Capital CIO Manish Singh expects the pound this year to hold at its current level against the dollar (around $1.3626 at the time of writing) or head to $1.40.

He said the pound would only move higher than the $1.40 mark next year, “on the benefits of Brexit accruing over time.”

Reference: CNBC