Weekly Market Wrap 17-May to 21-May 2021

Marius Paun | London, UK | Senior dealer |Friday 21st May 2021

The FOMC Accept That They Will Need To At Least Start To Think About Tapering?

We had the US FOMC meeting minutes released this week showing a number of participants confident that taper discussion could be appropriate at the next meetings. By and large, the inflation outlook was unchanged. Members also acknowledged that the last jobs report indicated the rate of increase in private employment has slowed compared with last year.

Furthermore, it was agreed the economy is still rather far from ‘maximum-employment and price-stability goals’. Elsewhere, the US Treasury Secretary Janet Yellen said she wants businesses to help foot the massive infrastructure bill. The stock markets continued their slump initially but mirroring last week they’re about to recoup most of the losses going into the weekend.

The US President Joe Biden has decided to delay by two weeks a reassessment of the ban on US investment in Chinese firms controlled by the military. The ban was in place since last November when Donald Trump signed an executive order. The previous deadline set for May 27th has now moved to June 11th.

China released its April Industrial Production figures showing a rise of 9.8% vs 10% expected and Retail Sales 17.7% vs 25% expected. The slight miss was interpreted as a sign that the domestic economy is not as strong as initially thought. The biggest political parties in Europe will vote that any consideration of the EU-China Agreement on Investment will be frozen. The move was flagged earlier this month but the draft will make it official.

The European Central Bank chief economist Phillip Lane said his bank has a lot to do to spur inflation. Mirroring his US counterparties, he does not see inflation as a persisting phenomenon in Europe. Actually, the ECB said a lot of ‘inflation rise now is the unwinding of downside shocks of last year’.

The Bank of England’s Governor Bailey put investors at ease regarding the ongoing speculation of negative interest rates. Although he admitted it’s useful to have negative rates as a possible tool, he added ‘we’re nowhere near any talk of whether to use them’. He also reiterated that inflation gains are likely due to energy and will be ‘temporary’. Interestingly the central bank does not see strong evidence of input prices passing to consumer prices!!! UK April CPI came in at 1.5% vs 1.5% expected with the largest contributions being the housing, household services and transport.

The US oil prices fell on a BBC report (quoting the Russian envoy to OPEC) that an important announcement on Iran nuclear deal is imminent. This was denied the next day but the oil prices are still down for the week trading around $63.5 on Friday afternoon.

What a week for Bitcoin@Co. It dropped below $30,000 allegedly on Elon Musk’s tweet implying Tesla was selling or has sold its Bitcoin holdings on climate change issues (too much electricity consumed). Tesla later denied this, but the damage was done. On top of that, it appears that Beijing is in the mood for tighter regulation of cryptocurrencies trading which exacerbated the downside.

Gold prices continued to rebound to $1875 at the time of writing for the third straight week on a weaker US dollar and speculation that some investors might have dropped Bitcoin to go back into precious metals.