Investors estimate new economic damage from the pandemic in Europe

The yield on 10-year bonds continues to rise and hit new highs. During the European session, the American Treasuries at the moment reached the level of 1.160. 2-year US bonds have stopped near their peak on January 6 and have not shown any tendency to fall.

Amid soaring Treasury yields, gold has plummeted as investors move away from interest-free defensive assets. Nonetheless, President-elect Joe Biden is set to unveil plans for a new multi-trillion dollar stimulus package on Thursday that is expected to accelerate inflation. In this case, gold can be viewed as a defensive asset, and the downside movement may stop.

The stock market paused in anticipation of reports from the banking sector. Negative factors that have been ignored for a long time are still present in the market. The situation with the pandemic puts pressure on investors. The banking sector from Wall Street, including JPMorgan Chase and UBS Group AG, is lowering their forecasts connected with new restrictive measures during the quarantine period in Europe. At the moment, the tightening of social restrictions is putting heavy pressure on the British economy. The same is expected to happen throughout Europe. Additional problems are vaccination delays and trade disruptions due to Brexit. These are all catalysts for the fall in GDP in the first quarter.

Cyclical indicators show that although economic activity in the euro area rose in the first week of this year, it is much lower than a year ago. Population isolation and slow vaccination are not yet helping to cope with the pandemic. Against this background, economists expect another reduction in the Eurozone's GDP by about 4% in the first three months of 2021. Earlier, there was a growth forecast of 1.3%.

On this background, investors took a wait and see attitude. The specter of a correction in stock markets is back.

Main market quotes:

S&P 500 (F) 3,802.88 +10.88 (+0.29%)

Dow Jones 31,008.69 -89.28 (-0.29%)

DAX 13,958.15 +21.49 (+0.15%)

FTSE 100 6,778.29 -20.19 (-0.30%)

USD Index 90.362 -0.080 (-0.09%)

by JustMarkets, 2021.01.12

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.