Weekly Market Wrap 21-Jun to 25-Jun 2021

Marius Paun | London, UK | Senior dealer | Friday 25th June 2021

The BOE Leaves Benchmark Interest Rate Unchanged At 0.1%

The US President Joe Biden agreed yesterday to a $1.2 trillion bipartisan Senate deal to renew the country’s infrastructure of roads, bridges and highways. Seen as a crucial stimulus to help the economy compete with China, the spending would include investments in the nation’s power grid, broadband internet services as well as passenger and freight rails. Initially, Biden proposed a deal worth $2.3 trillion to fuel growth and address income inequality and trimmed the offer later on to around $1.7 trillion after an unsuccessful bid to win Republican support.

On Tuesday the Fed Chair Jerome Powell delivered his testimony in front of Congress saying the US economy has ‘shown sustained improvement since September 2020’. The real GDP is expected to post the fastest rise in decades with household spending also growing at a fast pace. The labour market has improved although the pace is uneven with job gains anticipated to pick up in the next months. He acknowledged inflation increased significantly in recent months but expects it to be transitory and to drop back towards 2%. The pandemic is still considered a risk for the outlook, especially the new strains.

We learned this week that China’s economic powerhouse region of Guangdong is at risk of power grid uncertainty. Apparently, the power usage in the area jumped over 23% from January to May this year compared with 2020, 5.5% faster than the national average. On another note, China plans to tighten regulations on iron ore trading. State planner, the National Development and Reform Commission is investigating trading on the iron ore spot market. The idea is to maintain market order and get rid of hoarding and speculation. Recently it’s been reported that base metals from the strategic reserve were released to keep prices under control.

European Central Bank’s President Lagarde said the recovery is gathering pace but authorities need to provide support ‘well into recovery’. Encouraging prospects for global demand could even speed up the pace but the new variants of Covid continue to pose a risk. She added that tightening now would be premature, posing a threat to the ongoing revival. Regarding inflation the ECB reckons the upward effect will be counterbalanced by the expected decline in energy prices??? Really?

There is renewed optimism among UK-EU officials over the Northern Ireland border dispute which has a June 30 deadline. This is when the grace period after Jan 1 Brexit deal will end. The UK is now likely to be granted an extension, according to Bloomberg.

We also had the Bank of England monetary policy meeting with the interest rate kept unchanged at 0.1%. As expected, the member’s vote was 0-0-9 with gilts purchases at £875 billion and corporate bond purchases at £20 billion. Regarding the QE, the vote was 8-1 with Haldane the only one in favour of tapering bond purchases, although worth noting that this was his last meeting.

The US oil prices edged higher reaching above $74.00 on Wednesday after a report that OPEC+ could hike output by 500,000 barrels per day in August. They’ve already added back 2 million barrels per day and the process will continue through July. The next meeting will be on July 1.

Gold prices posted a rather anaemic recovery this week to $1780 going into the weekend after dropping to $1760 last week. ‘The threat’ of a stronger US dollar is still keeping buyers on the sidelines for now despite incoming inflation.

Bitcoin dropped below the $30,000 mark yet again early in the week as authorities in the Chinese province of Sichuan ordered crypto mining projects to close over the last weekend. In the area, most miners use hydropower to mine Bitcoin. It recovered slightly to trade around $33,000 on Friday afternoon.