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Monthly Wrap February 2021

Written by George Lin/Senior Investment Manager CFS

Ongoing vaccination rollouts, company reporting season results and a social media frenzy were some of the key drivers behind a busy month for financial markets. However, perhaps the biggest driver behind markets can be linked to rising bond yields. Improving Coronavirus developments, better-than-expected economic data and vaccination programs in several countries have improved the overall sentiment on the return to economic normalcy. But this positivity has also had a drawback – that is, a continued rise in bond yields which has renewed the debate surrounding higher inflation, the potential for a pull-back in monetary policy support and possible flow-on effects for markets. Though this uncertainty erased some earlier gains, the Australian share market still rose 1.4% for the month, while the Australian Dollar fell from a three-year high to trade at about 78.3 US cents.

Key Developments

Coronavirus developments were largely positive in February, with the number of new cases falling dramatically in both the US and Europe. The dramatic fall in new case numbers came after an acceleration in the speed of vaccination program rollouts in many countries. In particular, the UK has administered at least one dose to 27% of its population, while the US has administered one dose to 19.2% of its population. At the end of the month, the Australian government kicked off its own vaccination program. While there are lingering concerns about new variants of Coronavirus and supply chain issues for vaccines, markets are increasingly confident that herd immunity can be achieved, at least in more developed economies, towards the end of 2021.

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