Weekly Market Wrap 24-May to 28-May 2021

Marius Paun | London, UK | Senior dealer |Friday 28th May 2021

The US Stock Markets Post A Comeback

We saw a rather quiet week in the markets dominated by the growth to value rotation narrative as well as never-ending debate of inflation/ yields making a comeback with a vengeance. S&P500 went back above 4200 and is now within touching distance of its all-time high of 4244 reached a few weeks back. The US GDP data release was of particular interest, showing a gain of 6.4% for the first quarter versus +6.5% expected. Analysts concluded that a drop in inventories and a reversal of poor trade numbers later in the year should work as a tailwind for GDP for the next few quarters.

Meanwhile, US Fed member Bullard said he expects to see inflation above 2% this year and the next. He added it will be temporary and although the time will come to talk about changing monetary policy it will not be during the pandemic. He added that instability risks are higher than normal but not at alarming levels. Furthermore, Bullard thinks investors are going into cryptocurrencies fully aware of potential volatility.

Elsewhere, China and the US trade negotiations seem to be on the right track after talks on the phone. Vice Premier Liu He and Trade Representative Tai said they had ‘candid’ and constructive dialog and agreed the bilateral trade is very important and that communications should carry on.

One of the reasons for the recent significant drop in Bitcoin price was thought to be China’s crackdown measures on Bitcoin miners. Such a major hub is believed to be the Inner Mongolia Autonomous Region, which issued some of the harshest measures: possible revocation of licenses for telecom and internet companies that engage in mining, cancellation of support for big data centres and cloud computing firms.

Over the last weekend, Belarus sent an Airforce Mig-29 fighter jet to intercept a Ryanair jetliner bound to Vilnius from Athens. It forced the aeroplane to perform an emergency landing in Minsk, where a dissident Journalist was immediately arrested. President of the European Commission Ursula von der Leyen referred to it as hijacking, attacking European democracy. At the same time, the EU applied sanctions and said it will deny access to EU airports from now on. It’s getting a bit heated!!!

On the European Central Bank front, policymaker Pablo Hernandez de Cos reiterated the rise in euro area inflation is transitory, ‘this isn’t anything new but we’ll see if there will be any other differing commentary before we get to the 10 June policy meeting next month’.

Back in the UK, Bank of England’s Governor Andrew Bailey testified in front of the UK lawmakers on inflation concerns and admitted his central bank needs to look at inflation ‘more carefully’ than normal, as that story has similarities to the US. The growth in the inflation trend indicates there is little need for more stimulus. Regarding the forex market, the rise in the pound sterling puts downward pressure on trade prices.

The US oil prices had a great week rising from a low of $63.57 to $67.26 on Friday afternoon as crude inventories came in lower than expected, down 1.7 million barrels. True to their recent excellent form, Gold prices also continued the advance, breaking above $1900 level, seen last time on January 8. It reached a high of $1912 before retracing to $1897 going into weekend. It seems the inflation concerns are giving the bulls the upper hand. After dropping below $30,000 the other week, Bitcoin rebounded somewhat, even breaking back above $40,000 at one point. However, we saw some renewed weakness on Friday, back to 36,000 with many pondering whether the recent selloff still has legs.