Commentary on financial market developments – February 2021
Highlights:
- COVID-19 vaccination
- USA: fiscal stimulus
Commentary:
Equity markets posted decent gains in February. Virtually all major markets performed well, except Brazil, which is struggling with a coronavirus pandemic and a weakening domestic currency. Gold played the classic role of an asset that has negatively correlated returns with equities. And as equities performed decently, gold continued the downtrend it has been on since last August. In contrast, the price of oil rose strongly for the fourth month in a row, breaking the $65 per barrel mark. The cryptocurrency Bitcoin also reached its record high, approaching the USD 60,000/BTC mark.
The main factor most affecting the world economy is still the coronavirus pandemic and how individual countries are coping with it. The key to economic recovery is to vaccinate the population as quickly as possible. And that is where the success of the superpowers varies. The US far outstrips the EU in vaccination rates, as does the UK, which finally left the EU earlier this year. The US is managing to vaccinate 1.33 million people a day, and at this rate, 75% of the US population should be vaccinated by the end of this year! Although the European Union had an ambitious plan to have 70% of the population vaccinated by this summer, this will certainly not happen. Because of this, even the European
Commission has downgraded this year’s EU economic growth estimate from +4.2% to +3.7%.
High expectations of a global economic recovery are behind the continued rise in oil prices. More to the south of the US, specifically in Texas, severe frosts have hit, making energy commodity prices more expensive.
The cryptocurrency Bitcoin has reached a new record level. It benefited from Tesla founder Elon Musk’s announcement that the company would allow clients to pay in bitcoin. Because of this, Tesla also bought cryptocurrency on its own ledger. Mastercard also informed the investing public that it will expand the ability to use cryptocurrencies for payments. However, after a strong positive reaction, a price correction is now underway.
At the end of February, the US House of Representatives passed a $1.9 trillion (41 trillion kronor) package of measures to support the local economy hit by the Covid-19 pandemic. The proposed package is still to be voted on by the Senate and should be approved thanks to a majority of Democrats. Such a huge fiscal stimulus is obviously (in the short term) positive news for stock markets.