Week of February 19 Financial Market Rounding Up: Positive progress on the US fiscal stimulus package and positive signs on the epidemic situation have provided substantial support for risk sentiment. But the sharp rise in Treasury yields kept a lid on risky assets, particularly as the pullback in U.S. stocks recovered significantly. At the same time, Bitcoin continues to see more institutional buying, and the world’s first Bitcoin ETF has been listed in Canada. More retail money is pouring in, adding more fuel to the rally. Gold bulls have been losing ground in the face of a steady flight to safety and an improvement in risk sentiment. Sterling and interest rate markets have been dominant over the past week, and European bond yields have also been rising. Sterling may be providing support against the dollar, while higher real interest rates in the US are slowing the dollar’s decline.
Epidemic: According to the new trial results, the Biontech/Pfizer new crown vaccine no longer requires extreme cryopreservation, which will allow it to be distributed far more widely in clinics, pharmacies and more remote areas. According to the Centers for Disease Control and Prevention (CDC), the number of new crown infections in the United States has been on a downward trend since early February. The average number of new crown infections in the United States is down 43% from two weeks ago. Dr. Wolonavirus, the center’s director, said the novel coronavirus variant could lead to a new surge in cases in the United States and an accelerated spread of the epidemic.
FX markets: Federal Reserve officials agreed to keep monetary policy loose for a long time to help the U.S. economy recover from its new crown, minutes from the Fed’s January meeting showed. So expectations of Fed rate hikes and tapering before the employment and inflation targets are met may be a “fantasy,” and easing expectations and easing reality are putting further pressure on the dollar.
Stock markets: Major indexes remain near record levels, even as rising yields have weighed on U.S. stocks over the past few days. Optimism about a strong economic recovery is fuelling risk appetite. But Treasury Secretary Janet Yellen said on Thursday that the United States still needs a substantial fiscal stimulus to achieve a full recovery. She thinks the $1.9 trillion stimulus package could help the U.S. return to full employment within a year. That gave investment sentiment a modest boost, but mixed economic data highlighted the uneven recovery and led to a divergence in performance between sectors.
Commodities: Higher Treasury yields have increased the opportunity cost of holding gold as a non-interest-bearing asset, adding to the resistance to gold’s rally. Bitcoin’s rally, meanwhile, shows no signs of stopping and is continuing to eat into gold’s safe-haven flow. In addition, a deadly winter storm in the southern United States this week caused power outages in Texas for several days, damaging the state’s energy infrastructure and shutting down millions of barrels of crude oil a day. As the global economy recovers from the shock of a new pandemic, demand for crude oil will gradually pick up. However, the recovery in demand may be limited as the likelihood of a large-scale return of international travel any time soon is low.
Tensions between the US and China are likely to continue as G7 seeks collective confrontation with China
Leaders of the Group of Seven leading economies said on Friday they would seek a collective approach to China to counter “non-market oriented” policies and practices and ensure equitable multilateral global trade.
“We will engage with other countries, in particular the G20, including large economies such as China, in order to support a global economic system that is fair and mutually beneficial for all,” the G7 said after a virtual leaders’ meeting.
“As leaders, we will consult to address non-market oriented policies and practices together, and we will work with other countries to address important global issues that affect all countries,” he said.
On the United States side, a senior administration official said President Joe Biden on Friday will seek to rally global democracies and European Allies to work together to address a range of concerns about China, but he does not want a “new Cold War.”
Mr Biden is expected to arrive with “gifts”, including promises of $4bn in support for global coronavirus vaccination, the US return to the Paris climate agreement and the prospect of nearly $2tn in spending measures that will boost the US and global economies.
The official said Biden will make clear his view that major market economies and democracies must work together to address the challenges posed by great power competitors like Russia and China, as well as transnational challenges ranging from nuclear proliferation to climate change and cybersecurity.
Bitcoin could be the next ‘stimulus asset,’ says Gundlach
Gundlach tweeted on Thursday that he had changed his long-term bullish view on gold and bearish views on the dollar. He has been neutral on both positions over the past six months.
He pointed out that Bitcoin, the world’s largest cryptocurrency, could become the next “stimulus asset” after gold in the future.
Bitcoin’s price passed several milestones earlier this week as institutional investors and billionaires like Elon Musk paid attention to the cryptocurrency, passing the historic $56,000 mark on Friday.
Gundlach is the latest of many analysts and investors to predict that bitcoin could soon replace gold as a digitally safe asset.
One such bitcoin bull is JPMorgan’s Nikolaos Panigirtzoglou, who has repeatedly argued that bitcoin is digital gold and has a long-term price target of $146,000.
However, the bank said it does not expect bitcoin to reach that goal anytime soon, with price volatility this year pointing to a close of $35,000 for the currency.
The big test of the $1.9tn fiscal stimulus is coming
House Speaker Nancy Pelosi said on Thursday that the House aims to pass the $1.9 trillion stimulus plan by the end of February and that she hopes to vote “sometime before the end of next week.” The House and Senate approved a budget reconciliation earlier this month, allowing Congress to pass the $1.9 trillion stimulus plan without Republican support.
But need to be careful, the performance of the current risk assets may have digested the positive influence of the fiscal stimulus so do not rule out buy rumours sell the fact, and once the unexpected, such as reduced or delayed again, these are likely to hit the current investment sentiment, thus increasing back pressure, so the performance of the risk assets such as stocks next week will still be very volatile, investors need to be treated with caution.
For gold, if fiscal stimulus passes, investors will still have to see if it boosts risk sentiment more than inflation risk. A bigger boost to inflation risks would effectively support gold prices, otherwise, it would continue to depress gold prices.