Europeanmarkets rallied alongside US equity index futures as the recent factor ofbearish pressure - correction in sovereign debt markets and related volatilityof interest rates - faded into the background. The themes of global expansion,bull market in commodities and fiscal impulse in the United States areapparently returning to the forefront.

Aftera short period of stabilization, the yields on long-term US and German bondsare on the rise again as local Central Banks stand their ground and refuse tocontain the rise. And no wonder, in fact, in the past few weeks, the dynamicsvery desirable for central banks has been taking place in bonds - real interestrate started to rise as well. This is usually associated with"qualitative" economic growth and increasing productivity. Untilmid-February, the biggest contribution to the growth of nominal rates was madeby inflation expectations, which could have worried the Central Bank, but thenthe real rate joined the party and immediately soothed concerns. By the way,this is why gold also collapsed, since an increase in the real rate means anincrease in gold’s opportunity costs:

Gold has negative correlation with US real interest rate and therefore tend to decline when the interest rate starts to rise.

Although the real rate has risen, it is still deep in the negative zone. It is at a historic low. It has a room to rise more. There are expectations that the rate will continue to rise, since it is believed that global economy is in the initial phase of upturn and related trends in the government bond markets can only start to emerge as well. This should have a negative impact on the Gold’s investment appeal for at least the next quarter or two.

The European STOXX 600 Index rallied for the third trading session in a row, and British assets reacted optimistically to the government's decision to extend payments to those who lost their jobs as a result of lockdowns.

The data on retail sales and unemployment in Germany made sad adjustments to the expansion story. The forecast for growth of the key item of consumer spending did not materialize - sales fell by 4.5% in monthly terms, against the forecast of +0.3%. It was also expected that the number of unemployed will decrease by 13K, but the number of unemployed, on the contrary, has increased. There has been another mini-shock in expectations for the largest EU economy, which paints an unclear outlook for European assets. European stocks are ignoring the worsening data so far, but for how long? The Bundesbank in its report on Wednesday said it expects a marked decrease in economic activity in the first quarter.

The European currency has experienced difficulties in growing amid negative data and the strong economic outlook for the United States undermines the idea that the dollar will weaken on the upcoming growth in the money supply in the United States due to fiscal stimulus, as an inflow of investors in US assets due to expectations of higher expected returns could start to counterbalance the supply factor.The US labor statistics on Friday will provide more information on the speed and direction of the US economic recovery, but one should closely monitor the emerging trend in the US, as it has every chance of developing into a medium-term strengthening.

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