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Risk-on after calm in bond markets, impressive ISM data, ECB slows purchases

US equities climb on stronger risk sentiment

US stocks are rising higher as investors embrace calm in the bond market and look to a brighter future following J&J’s COVID vaccine authorization and robust US manufacturing data.  Last week’s bond market selloff was for growth, not inflation, and that is helping many traders become comfortable with the idea of a higher stock market and steady rise in Treasury yields.  Now that the US has three highly effective COVID vaccines, expectations for herd immunity at some point in the summer should release a lot of pent-up buying power from the US consumer.  The small-cap trade is back and will likely lead the charge higher as reopening bets return.

A very strong ISM report showed that the manufacturing economy continued its recovery in February.  The headline reading of 60.8 was much higher than the consensus estimate of 58.6 and matched the highest reading since February 2018.  Supply shortages, higher commodity prices, and higher prices paid, explain while managers are still conservative with hiring new people.  The US economy looks strong, with virus mutations being the main risk to the outlook.  If the next few months do not provide a major reversal in the reopening of the economy, the manufacturing sector could run hot.


Normally the start of the month would focus on Chinese manufacturing data, but this time, China took a backseat to Australia.  The RBA’s commitment to yield curve control provided a lot of comfort to investors that the all the other central banks will fall in line.  The RBA’s decision to double their bond purchases signaled central banks won’t let the reflation trade get out of control.  Central banks are firmly committed to a low-interest rate environment this early in the global economic recovery and that should remain the case for the Fed.  China’s economic data disappointed, but many are shrugging that off due to the Lunar New Year holiday.


The euro held onto losses against the dollar after reports that the ECB reduced their pandemic bond-buying last week, despite the skyrocketing move across global bond yields.  The short-term outlook for the euro is somewhat bleak now that the UK Covid variant is spreading across Germany, France, and Italy.  The US growth exceptionalism could provide some strong headwinds for currency traders who were looking for a softer dollar.  Europe is ramping up inoculations against Covid-19, but still trails the US by months.  The euro will likely struggle in the short-term to both the dollar and British pound solely on Covid vaccinations.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya [4]

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya
Ed Moya

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