February was a bit of a rollercoaster with main stock indices booking solid gains early on in the month but then gradually selling off again during the second half. Nonetheless markets overall gained in February, erasing the small correction in late January and turning positive year to date.

The Eurostoxx 50 gained 4,45%, the German DAX 2,63% and the French CAC40 5,63%. The Slovenian SBITOP also gained 2,38%. The UK FTSE index increased by a modest 1,19%, but the Pound Sterling gained a solid 3,17% against the Euro.

In the USA the Dow Jones also gained 3,17% and the S&P500 2,61%. The Nasdaq only gained 0,93% as technology stocks generally underperformed other industry sectors. The dollar gained a modest 0,51% to 0,2074 against the Euro. Asian markets also  gained with the Japanese Nikkei adding 4,71% and Hong Kong Hang Seng index 2,46%.

President Joe Biden's proposed 1,9 Trillion dollars stimulus package, known as the »American Rescue Plan«,  received one-sided approval on February 4 to be sped up through the process of reconciliation, effectively dodging the filibuster rule that would enable Republicans to block the package. The proposed package passed the House vote on February 27 and will be voted on in the Senate in March, which is certain to become a close vote. Nonetheless optimism on COVID stimulus, which includes an additional one-time $1400 paycheck for American citizens, boosted the markets.

The latest concern on the markets is the considerable climb of the yield on the 10-year Treasury notes, resulting from a sell-off on the bond markets and raising concern on climbing inflation and borrowing costs which could slow down the economic recovery. The yield climbed from 1% to 1,6% throughout the month, reaching the highest level since January last year. Stronger than expected factory output and retail sales (in part as a result of December's $900 billion stimulus bill), alongside a jump in producer prices has investors worried about growing inflation as the economy begins to recover from COVID's impact.

Also commodity prices are extending their gains, further adding to inflation concerns, with oil gaining 17,82% to 61,5 dollars per barrel and copper prices hitting their highest price since 2011. The oil price was boosted by refinery shutdowns in Texas as a result of the unexpected freezing temperatures, as well as the prospect of renewed energy demand in the second half of the year.

Nonetheless the Federal Reserve expressed no concern on inflation, saying it's still well below target levels and that the pandemic will continue to keep downward pressure on it. Analysts also suggest that the current 10-year Treasury yields around the current levels is far more realistic as the economy is initiating its recovery. The long-term yield at 0,5% last year was just unsustainably low.

We remain bullish on the markets, and even more so if Biden's »American Rescue plan« passes the vote in the Senate.

Rudy Marchant
Fund manager Primorski skladi d.o.o. Koper

Monthly reports - February 2021