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Euro Stoxx 50 Climbs to Pandemic Record, 10yr Bund Yields Rise to Five Month High


Euro Stoxx 50, German Bunds Talking Points:

  • Euro Stoxx 50 trades near 3,700, highest level since Feb. 2020
  • German 10yr Bund yields rise to highest level since Sept. 2020
  • Eurozone economy likely to face double-dip recession

Euro Stoxx 50 Nears 3,700 For First Time Since February 2020

The Euro Stoxx 50, Europe’s leading blue-chip index, has risen to trade near the 3,700 level Friday for the first time since the onset of the Coronavirus pandemic. In mid-February 2020, the index had risen to 3,860, its highest level since May of 2008. The Index plunged by over 30% during March’s volatility before grinding its way back higher.

Unlike its US counterpart, the Dow Jones Index, the Euro Stoxx 50 has failed to rise back above this early 2020 high amidst the pandemic. More stringent economic restrictions in Europe and the relative lack of fiscal stimulus may be behind this underperformance.

Euro Stoxx 50 Index: 1 Day Time Frame (Jan. 2019 – Feb. 2021)

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Chart created by Izaac Brook, Source: TradingView

The Eurozone economy has been hard hit by Covid and the related measures to control its spread. While vaccine efforts are now underway, downside risks have risen as cases resurge and containment measures are extended or reinstated. A double-dip recession now seems likely as economists forecast a contraction in Eurozone GDP for Q1 2021.

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While Eurozone inflation rose in January, this uptick was mostly tied to the lapsing of Germany’s VAT reduction, a measure put in place to provide economic support during the pandemic. Inflation is likely to remain short of the ECB’s target for an extended period of time, a likelihood that ECB policymakers have made clear.

10yr Bund Yields Edge Higher

Despite a recent extension in German’s lockdown, the yields on the 10yr Bund, Europe’s premier safe asset, have climbed slightly higher. 10yr Bund yields first dropped into negative territory in the spring of 2019, as fears of a European recession grew. Yields whipsawed during March’s volatility before trending slightly downwards into December. Since mid-December, yields have begun to rise, climbing from -0.63% to their current level around -0.42%.

Germany 10yr Bund Yields: 1 Day Time Frame (Jan. 2019 – Feb. 2021)

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Chart created by Izaac Brook, Source: TradingView

The rise in Bund yields comes shortly after a string of hawkish comments from Bundesbank President Jens Weidmann today. Weidmann predicted that Germany’s inflation rate would surge above 3% in 2021 and warned that monetary policy would need to be tightened if necessary.

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— Written by Izaac Brook, DailyFX Research Intern

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