Debt market spooks equities (Daily analysis 23.02.2021)

Equities and cryptocurrencies have recently become unsettled by the pace of the bond market sell-off. At the same time, industrial commodities continue their upward trajectory and reignite reflationary tendencies.

The US dollar ticks a tad higher against G-10 peers and dominates against emerging markets currencies. The EUR/USD pair managed to erode 1.2150, yet the move higher faded below the 1.22 handle. The pound sterling continues its stellar performance, and the GBP/USD pair sky-rockets to trade close to the 1.41 handle and is at the highest levels in almost three years. In contrast, the Swedish krona turns sharply lower as European equity markets sink.

A key event of the day is Jerome Powell's semi-annual testimony before the Senate Banking Committee. We expect hardly any new information on monetary policy prospects and a clear reiteration that the Federal Reserve will remain patient before even considering removing the stimulus. Noteworthy, a rapid rise in yields and the inevitable tightening of the financial conditions triggered some comments from the European Central Bank's Governing Council. Both Christine Lagarde and François Villeroy repeated that the ECB closely monitors longer-term nominal bond yields.