Stock markets ending a strong week on a high ahead of the US jobs report, with futures modestly higher and Europe making decent gains.
This week has been just what the doctor ordered after weeks of unease and growing anxiety in the markets. Whether driven by the Reddit rebellion, a lack of trust in the Fed to not intervene too soon in the recovery or just a normal corrective move following a powerful run in uncertain times. Whatever the cause, investors will be going into the weekend somewhat relieved.
We’re not out of the woods yet. There’s every chance we could see stocks turn south again next week but it’s always good to get a week like this under your belt after a difficult period. And there is reason to be a little more optimistic.
After weeks of lockdown, numerous countries have turned a corner and every passing week of the vaccine rollout is one closer to being able to leave the house for something more than a jog. I’ve even found myself looking forward to getting the tube again; I can only imagine what the summer is going to be like as everyone breaks free.
As ever, investors have one eye on what’s happening in Washington and Democrats appear to be making good progress on their $1.9 trillion stimulus ambitions. It may not be quite the partisan deal that Biden wanted – much to the annoyance of a number of Republican lawmakers – but time is the priority for the new administration. And they are confident they can get it over the line, with or without Republican support.
While that has contributed to the stock market rally this week, it’s also helped lift US Treasury yields once again. The 10-year is back around the levels it peaked at in the middle of January, the difference this time being that it doesn’t seemed to have spooked investors in the same way. Perhaps the Fed’s soothing words and stronger economic data are putting investors minds at ease.
And nothing quite grabs the limelight like the US jobs report. Wednesday’s ADP payrolls have generated some optimism ahead of the data, despite their history for being far from reliable. Still, should the NFP number see a similar beat, it would be very encouraging in what has otherwise been a terrible month and position the US for a very strong recovery this year.
Oil eyeing $60
The oil price rally just keeps on going. It appeared to have stalled this time last week but there’s much more optimism in the markets this week and that’s being reflected here. Larger inventory drawdowns and the determination of OPEC+ to rebalance the market rapidly, as per their comments this week following the monthly meeting, has further supported the recent moves.
With Brent now fast approaching $60 a barrel, an incredible feat given events over the last 12 months, we’ll soon see whether it has the momentum to jump into a new price bracket. A move above $60 is psychologically significant. And while OPEC+ may welcome prices continuing on this trajectory in the near-term, they will become increasingly wary about the re-emergence of US shale given the challenges it’s posed in the past. With momentum not easing up at the moment, we may be talking about $60 WTI soon, not just Brent.
Gold getting whacked by resurgent dollar and yields
It’s been a rotten week for gold. Higher yields and a stronger dollar after a big technical breakout has crushed the yellow metal, driving it back below $1,800 for the first time since the start of December. The dollar broke above the neckline of an inverse head and shoulders and could see some reprieve in the near-term, supported by higher yields.
That could mean gold testing late November lows before too long, with $1,750 and $1,700 then being big tests below. The trend isn’t looking overly favourable for gold in the near-term but the dollar is expected to remain under pressure in the medium to long-term so it doesn’t necessarily spell the end for the precious metal.
Musk having fun with cryptos
Elon Musk is clearly having a lovely time, the self-proclaimed “destroyer of shorts” is using his Twitter influence to pump up crypto’s with Dogecoin his toy of choice at the moment. Whether that’s good for the space longer term is another thing but will anyone who held it before this week really care?
Bitcoin reaped similar benefits following its flirtation with the Tesla CEO and co-founder last week, although its surge was more modest by comparison and didn’t last very long. Perhaps the prospects of more of these antics from Musk is the latest bull signal for cryptocurrencies. Although his foray into Dogecoin may encourage speculators to turn their attention to other altcoins in the hope of even greater returns. Sounds healthy. Musk doesn’t appear to be getting bored though.
