Market Outlook: Bitcoin hits fresh record high, stocks sell off early

  • Rising bond yields are a cause for concern
  • Price increases are beginning to prevail with raw materials at the avant-garde
  • The UK’s cautious lockdown-locking plan is officially launched today

Are things like inflation and rising bond yields really a problem for the market? Commodity prices continue to rise, inflationary pressures are evident and the huge increase in money supply provides the ammunition. The Fed’s average inflation target provides the necessary context. Last Friday’s PMIs pointed to higher inflation. Significant price increases for inputs such as PSA resulted in the fastest increase in “cost burdens” since October 2009, when the index began. In addition, the strong demand allowed companies to pass on the rise in costs by increasing sales prices. The rate of inflation in the fees that companies charge their customers was the second fastest in its history (after only November 2020). In the UK, the composite PMI showed that “cost pressures in the UK private sector increased in February”. Government bond yields continue to rise. 10-year US Treasuries are trading at an annual high of nearly 1.4 percent. The spread between 2 and 10 years is 1.28 percent, the largest in four years, while the spread between 5 and 30 years is 1.57 percent at a 7-year high. UK gold yields are at annual highs above 70 basis points and 2s their highest since April, suggesting that the market does not believe the Bank of England is aiming for negative rates.

Read editor John Hughman’s thoughts on inflation in this week’s column and find out why private investor diary writer John Rosier is sticking to commodities in his portfolios.

If the Fed is concerned about inflation and rising yields, this week’s round of talks is an ideal time to push back. I don’t expect that to be the case – the Fed specifically wants the economy to run as hot as possible in order to bring employment back to 2019 levels. But that is why inflation expectations can no longer be anchored. Powell gives his semi-annual testimony to Congress this week while Richard Clarida gives two speeches on economics and monetary policy. Lael Brainard and Michelle Bowman will also speak this week. I think Fed spokesmen will stress both the evanescence of inflation hikes and that policymakers are happy with pressures above 2% (AIT implies this anyway). We know where the policy makers are sitting on it. Treasury Sec Yellen said last week the price of too little to do is “much higher” than too much to do. Anchors are slipped.

European markets sold out early Monday, with major exchanges falling around 1 percent. Inflation and yield problems may be the driver, but the move seems a bit overcooked. Investors are starting to be concerned about returns – TINA is no more. The question is allocation and small caps rather than large caps. Oil is trading a few dollars from its high last year, gold has made a decent fist of rallying from key support at $ 1,763 to regain $ 1,790 as the dollar rose in early trade and GBPUSD was just below $ 1.40. Copper prices fell but stayed above $ 4 and fundamentals continue to be supported with a large deficit this year.

British Prime Minister Boris Johnson will pave the way out of the lockdown tonight – except that most of it has already leaked to the press so that we know the key steps. Schools first, pubs last. Maybe that’s fair, but we can argue that the prudence will result in a slower rebound this year than it could be.

Bitcoin set a new record on Friday with its market capitalization. [total coins in circulation x price] over $ 1 billion for the first time. Prices soared towards $ 58,000 over the weekend but have since reduced profits to around $ 56,000. Elon Musk said prices seemed “too high”. Wags will note that Musk tweeted about “Tesla stock price is imo too high” in May 2020 – and we know what has happened to the stock since then. His decision to invest $ 1.5 billion in Bitcoin laid the foundation for a near-term constructive view of Bitcoin that builds on the profits made since PayPal’s move last year.

It’s been some heady weeks with a range of corporate and institutional support measures leading to higher prices. In addition to Tesla, BlackRock has started trying its hand [in Bitcoin]”Long-time gold bull Jeffrey Gundlach of DoubleLine Capital is supporting Bitcoin as an asset to isolate investors from big money inflation. Microstrategy issues senior convertible bonds worth $ 600 million to buy more bitcoin. BNY Mellon became the first major National Custodian to provide crypto asset custody services, and Mastercard announced that it will be supporting some cryptos this year.

It goes without saying that new Bitcoin investors should be prepared for major volatility and so that prices suddenly fall as sharply as they rose. We’ve already seen a 30 percent drop in Bitcoin this year from its high on January 8th to its low on January 21st. If we see another 30 percent drop from these levels, we will see $ 40,000 again. Tesla has made around $ 1 billion from its investment to date, according to Wedbush.

Neil Wilson is the Chief Markets Analyst at Markets.com

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