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Markets mixed on last day of Q1: everything you need to know

Fawad Razaqzada Fawad Razaqzada 31/03/2021
Markets mixed on last day of Q1: everything you need to know Markets mixed on last day of Q1: everything you need to know
Markets mixed on last day of Q1: everything you need to know Fawad Razaqzada
  • Markets mixed on last day of first quarter
  • Yields could rise further on more US government stimulus
  • ECB’s bond buying will keep the pressure on EUR/USD
  • Looking ahead to Q2
  • Deliveroo disappoints on debut
It has been a subdued session so far on the last day of the first quarter, with investors not keen to take on too much risk ahead of the upcoming bank holidays across Europe and elsewhere. Although US futures had drifted into the positive at midday in London, European shares were mixed following a weaker overnight session in Asia. Traders were keeping a close eye on the 10-year Treasury yield, which hit a fresh high for the year on Tuesday at 1.774%, before easing back down a touch to trade at 1.723% at the time of writing. The dollar weakened slightly, allowing gold to bounce after a sharp two-day slide. Crude oil was steady after Tuesday’s drop, ahead of US oil inventories data in the afternoon. 

How will the markets behave as we head towards the US session and close out the quarter? And how will the markets shape up in the second quarter?

US yields could rise further on news of more stimulus

Stock market bulls have until now been keen to keep buying the dips amid record stimulus from central banks and governments around. US President Joe Biden is expected to unveil a $2.25 trillion infrastructure plan today. According to the US government, corporate tax increases would "fully pay for" the ambitious 8-year plan. While more stimulus should be good news for stocks, it will add to inflationary pressures, potentially lifting yields further and causing more pain for gold. So, don’t be surprised if the yellow metal falls further as rising yields increase the opportunity cost of holding the metal. Meanwhile keep an eye on the dollar. Although it has weakened, the path of least resistance remains to the upside for the greenback, owing to the stronger performance of the US economy and faster vaccine deployment relative to most other parts of the world.

ECB/USD likely to remain under pressure amid ECB bond buying

Bond yields have also been rising in Europe, albeit they remain well below the US, which is why the EUR/USD has been falling. Still, the European Central Bank President Christine Lagarde insisted today that policy makers won't shy away from using all their powers, with “maximum flexibility”, to stop them moving further higher. News that the euro-area inflation had risen to 1.3% year-over-year in March from 0.9% the month before will not ease the pressure on yields. But if the ECB is true to its word and increase the pace of assets buying, then the upside will be limited for Eurozone yields, meaning the single currency will likely remain under pressure against currencies where the central bank is comparatively more hawkish, such as the US and Canadian dollars and British pound.

EUR/USD
Source: ThinkMarkets and TradingView.com 

Focus turns to US jobs

The March ADP employment report is due for release shortly. It is expected to show the world’s largest economy added 552K private jobs in February, which would be a big jump from the previous months. If confirmed, the dollar could rise sharpy. Today’s other US data include the latest Chicago PMI, pending home sales and crude inventories data.

On Thursday we will have more job market data in the form of weekly jobless claims and the employment component of the ISM manufacturing PMI. Then on Friday, it is the actual non-farm payrolls report to look forward to, in an otherwise quiet day as Europe will be closed due to Good Friday.
 
Looking Ahead: Q2

While confidence grows about the pace of US economic recovery, there will be plenty of reasons why investors might proceed with caution. These include concerns about tighter monetary policy as inflationary pressures rise, while Europe’s slow progress on vaccinations (where the virus has been rising sharply again), and ongoing disputes over supply of Covid vaccines could mean the re-opening of travel and tourism industry could be delayed longer than expected. It is also possible that more variants of Covid-19 could be found that might resist the vaccine. Meanwhile concerns over China’s relations with the West could come back to haunt certain sectors of the financial markets.

If yields start to rise more rapidly in the coming months then this could derail the stock market rally, although certain sectors like banks might perform better with rising borrowing costs.

But the UK’s success in vaccinations is a bright spot, while the US is also winning the race. Against this backdrop, the pound and the dollar could remain supported in the months ahead.

Deliveroo drops on debut

On a micro level, Deliveroo’s much-anticipated debut on the London Stock Exchange wasn’t a great one as shares fell as much as 30% before rebounding to trim’s its losses. As well as valuation concerns, with the company not making any profit yet, investors have been put off after a number of fund managers said they won’t be investing in the business because of the firm’s treatment of its riders. Deliveroo’s gig economy model means drivers won’t get paid holidays, pensions and other benefits. But if the government were to force Deliveroo to treat its worker as employees, then serious questions will be raised about the company’s path to profitability given that its margins are already thin as they are and the competitive nature of the delivery industry. 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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