Spotlight: Bitcoin (BTC)
Last week, all eyes were pointed at a single cryptocurrency while it reached a significant market capitalisation milestone totalling $1 trillion. The momentum is not stopping, with Bitcoin gaining 60% since the beginning of February and 17% last week to equal almost $55,000 at the end of last Friday. These gains are caused by many factors, including an increasing number of major banking institutions' declarations about the inclusion of BTC within their portfolios.
For instance, last week, a $150 billion Morgan Stanley investing arm declared that it was giving serious consideration to the inclusion of BTC in their portfolio. Even one of the most monitored companies, Tesla Inc., announced a 1.5 billion investment in BTC, adding to the momentum. Bitcoin rushed through the $50,000 price level without looking back, and although sceptics point into large players withdrawing millions worth of BTC from the major exchanges to decrease its supply and drive prices higher, the whole market does not seem to care. Is cryptocurrency rush a bubble? Or maybe is it an organically growing market with perfect anti-inflationary features? We leave it for you to decide.
The American index awaited consolidation between 3900-3950 points for the next move last week. It's rumoured that it prepares for a correcting dive even up to 10%, which “seems very plausible”, according to the chief U.S. equity strategist at Citigroup, who mentioned this in his Wednesday’s note. The first three-day streak sell-off was exacerbated by the rising yields on 10-year Treasury notes, resulting from increased worries about the rising inflation. Slow labour market recovery stumbles with the US jobless claims rising to 861,000, despite economists expecting a small decline to 765,000 from 848,000 in the week before. Congress is in a quandary about adopting Joe Biden’s $1.9tn stimulus, which he says would allow the economy to come “roaring back”. No wonder the hesitation exists, as the current government debt is projected to surpass the US economy’s size in 2021, even without accounting for Biden’s new stimulus. Even the former IMF chief economist Olivier Blanchard who is known to be a supporter of higher public debt levels, comments that Biden’s fiscal stimulus could “overheat the economy so badly as to be counterproductive”. Robust US retail sales data just added fuel to the flames by rising inflationary pressures and worrying investors. Even Bank of America called it the ”mother-of-all asset bubbles”.
On the other hand, current weather conditions cooled down the vaccine's distribution by causing delays and staggering deliveries across the country. Also, the Pfizer vaccine turned out to be ineffective against the South African strain. These challenging times still allow for average daily vaccinations of 1.7 million Americans against Covid-19, keeping the hope alive.
In a nutshell, the FTSE 100 corrected itself last week from a peak of 6,800 to settle around the 6,650 level on Friday. On Monday last week, the vaccine-driven recovery halted in anticipation of commercial banks results. Thursday has shown FTSE 100 sliding into red, which was fanned by a fall of 5.9% of Barclays share price, despite positive earnings surprise and the announcement to restart dividends. Nevertheless, improved consumer confidence scores bring hopes of an economic rebound in the upcoming months, driven by increased consumer spending.
The FTSE 100 has been having a hard time since the 2016 referendum. An increase in the pound relative to the dollar bore hard on the prevalent dollar-earners in the index. On Friday, GBP/USD reached a $1.40 level, not seen since April 2018. Moreover, many asset managers emphasise that the weak post-COVID Crash recovery is mostly attributed to a tiny proportion of tech companies in the index. At the same time, the stagnant “old economies” occupy the index. The current business atmosphere fuelled by tremendous fiscal help from the FED in the US, together with current trends in investing, is likely to cause FTSE 100 to remain underweighted among the majority of asset managers.
Last week was met with a slight correction for the German index signalling the 14,000 level to remain a strong psychological resistance for now (a price level at which investors are reluctant to buy further, caused by the value of the number itself). DAX is relatively stable at the current level keeping up since the beginning of February. Whether the momentum continues or the market corrects is mainly up to the market sentiment, driven mostly by positive expectations about the vaccine rollout. Despite European stock performing well, Tuesday's economic data showed a 5% contraction in the Eurozone.
Federal Minister for Economic Affairs and Energy, Peter Altmaier stated that there is no need for further stimulus in Germany. It seems European countries are trying to avoid indebting the governments as much as possible, (contrary to the USA) and opt for vaccinations instead of injecting more money into the economy.
The new year of Ox starts with a very positive movement of CSI 300, peaking at almost 6,000, with the stock exchanges in Shanghai and Shenzhen opening on Thursday. In spite of a downward pull caused by rising inflation concerns and US Treasury yields rises, Asian stock markets are expecting a sturdy bullish year, with expectations for the Chinese economy growth reaching 8%. According to Morgan Stanley, the main driver is going to be private consumption, expected to more than double to $12.7tn by the end of 2021.
Japan also has reasons to celebrate with Nikkei 225, reaching an important historic level of 30,000 points. Similarly to other markets, the raise was sparked by optimism around vaccine-driven recovery. Substantial gains of the index can be explained by foreign investors returning to companies such as SoftBank Group Crop or Sony Corp, which experienced strong earnings at the beginning of February. However, the head of major Japanese brokerages, Daiwa Securities Group Inc. CEO Seiji Nakata, bullishly claimed that “there is no feeling yet that shares are overvalued”.
Last week Hang Seng reached 31,000 points before slipping again on the news of Treasury yields rising in the USA. Some claim that it is a great moment to enter the Asian market before further gains in 2021.
According to McKinsey’s report, the effects of the COVID-19 pandemic materialised rapidly, which is best exhibited by the $10tn of fiscal help injected into the economy just within the first few weeks. That is three times more than the response to the 2008-09 financial crisis. History has shown that economic repercussions can have prolonged effects, despite strong fiscal and monetary stimuli. Rising inflation and unemployment levels are offset by optimism coming from the vaccine distribution worldwide. Only time will tell which force will prevail. Therefore the uncertainty still hangs above the markets and is likely to remain with us for a bit longer.