Weekly Market Wrap 15-February to 19-February 2021

Marius Paun | London, UK | Senior dealer | Friday 19th February 2021

Bitcoin reaches $1 Trillion Market Cap

We had a mixed bag in terms of US economic data this week. On one hand the Retail Sales figures showed a better than anticipated 5.3% increase month on month vs expectations for 1.1%. But on the other hand we saw a disappointing weekly initial jobless claims report, a jump to 861,000 vs 765,000 expected. The 10-year US Treasuries yields also rose to 1.31%, the high for the year. As a consequence, the stocks markets were jittery, posting a sharp selloff on Thursday.  The tech sector looked especially vulnerable to inflation pressures.

The FOMC meeting minutes revealed overall optimism that outlook for 2021 is now stronger than December forecast. The members also foresee further declines in the unemployment rate, although the general consensus is that labour market conditions deteriorated in December. The monetary policy is assumed to remain accommodative with inflation projected to moderately overshoot 2% in the next few years. In addition, the narrow victory for the Democrats in the Senate has boosted investors’ expectations for further fiscal stimulus.

Meanwhile the US Treasury Secretary Janet Yellen said in an interview with CNBC that she hopes to see progress on the stimulus bill in the next 2 weeks. She added that ‘inflation is a risk but the bigger risk is having the pandemic take a permanent toll on people’s lives’. She also said that tax increases will be used to pay for the future infrastructure projects. Interestingly she admitted that if the unemployment rate were to be measured ‘properly’, it would be close to 10%!

China has returned form Lunar New Year holiday with markets reopening on Wednesday. The Financial Times reported that even with Biden in charge, who is seen as a more composed talker, the relationship with the US is not likely to improve in the coming years. Beijing seems to have realised this point rather quickly and is now considering curbs on rare earth exports, thus hurting the US defence sector.

Elsewhere, the EU reported it has reached a new deal with Moderna for the supply of 300 million vaccine doses. After coming under scrutiny for the slow pace in arranging those vaccine supplies, Brussels also acquired an additional 200 million doses from Pfizer.

Back in the UK Prime Minister Boris Johnson has promised to ease lockdown in stages, with the steps to be outlined on February 22nd. He reiterated the approach will be cautious and prudent. In the meantime, Bank of England Ramsden said the central bank is ‘ready to implement simple negative rates and that they don’t expect to unwind bill purchases in the near future. Before tightening the current monetary policy BOE will need to see ‘strong evidence of inflation returning to target, progress to using spare capacity’.

Gold prices dropped below $1800 once more but found good support at $1760. The possibility of real interest rates going up does not bode well for the precious metal and some say the bitcoin explosion might also be a driver. The Oil Prices rose after OPEC+ promised to cut back output in the months ahead and the deep freeze in the US is threatening the supply in the next few days.

True to its form, Bitcoin crossed above $50,000 for the first time and has now passed beyond $1 trillion market capitalisation. No sign of stopping there and on Friday afternoon the cryptocurrency moved above $54,000 after earlier in the week Blackrock’s chief investment officer admitted the world’s largest asset manager had ‘started to dabble’ in bitcoin.