An impressive US nonfarm payroll report showed that the economic recovery is gaining momentum and sent both bond yields and the dollar higher. The US economy saw 379,000 jobs return, much higher than the 198,000 estimate, and the strongly revised higher 166,000 prior reading. Expectations will be high for hiring demand to remain robust since many states are reopening. Seniors that got vaccinated are already ready to travel and many millennials are ready to get back to where we were before the pandemic.
The job just got harder for Democrats to push through Biden’s $1.9 trillion COVID relief bill. The US economy is starting to look a lot better and that will trigger concern over the size of the bill from conservative democrats. The Biden administration will need to pass this bill by this weekend and that will mean they will likely capitulate on having a smaller price tag, with the bill ending up being closer to $1.4 trillion.
US stocks were all over the place following the stronger-than-expected employment report. The growth outlook is looking better and that should continue to push Treasury yields higher across the curve. With steady wage increases, that might be supporting the argument that inflation concerns are far away.
Investors probably won’t hear again from Fed Chair Powell until the March 17th FOMC meeting, so the move higher in Treasury yields could continue. The pullback with US stocks could be nearing an end as US growth exceptionalism should start to attract investors.
FX
The dollar rallied across the board immediately following the better-than-expected nonfarm payroll report. The US economy is heading in the right direction and that should keep the dollar in demand. The dollar could continue to rally over the next week since the Fed is not showing any signs they are close to pushing back against the rise in yields.
Oil
The energy market is still buzzing over OPEC+ surprise decision not to raise output next month. The oil market is poised for a strong tightening of the market as OPEC+ supply will lag demand over the next few months. The Saudi prince doesn’t seem to be worried about US shale and that means oversupply concerns for this year are gone.
Saudi Arabia’s decision to restrain production and maintain the 1 million b/d voluntary production cut has become a ‘whatever it takes’ moment. Brent went from overbought to it’s time to buy more. Brent forecasts will be seeing massive upgrades over the next week. The US is reopening the economy a lot faster due to COVID vaccine success and that will trigger a strong pickup in fuel demand over the next couple of months.
The enthusiasm in the energy market got another boost from a stronger-than-expected nonfarm payroll report that shows that Americans are closer to pre-pandemic behavior that will drive strong demand for crude. WTI crude is over the $65 a barrel level and the momentum could be there for prices to target the $70 level next week.
Gold
Gold’s terrible trading week ended on a positive note. A robust nonfarm p rigger a strong pickup in fuel demand over the next couple of months ayroll report triggered a spike higher in Treasury yields that did not break gold’s back. Gold is still licking its wounds following an underwhelming Fed Chair Powell that did not push back with the recent moves in the Treasury market.
Given the recent decline with gold, most traders would expect further pain given the employment outlook in the US has improved dramatically and since wage inflation is not happening. Gold is not in the clear and could see the modest rebound post NFP be more of a profit-taking move. If gold holds the $1650 level next week, chances are that Wall Street will believe the Fed will react at the March 17th policy meeting and that could be what is needed to attract investors.
Bitcoin
The flight-to-safety move that was triggered from the bond market is weighing on cryptocurrencies. Bitcoin remains highly correlated with bond prices. The bond market selloff is showing some signs of stability and that could mean the Bitcoin pullback is nearing its end. A key takeaway from this week is how much better Bitcoin has performed over gold. Bitcoin will likely return to its normal bullish ascent once the news flow returns to a steady stream of big crypto endorsements.
Many crypto-watchers are concerned over how the Biden administration will handle Trump’s anti-money laundering effort that would force to reveal identities of cryptocurrency holders. If Treasury Secretary Yellen moves forward with the regulation to keep records on who owns cryptocurrencies, that would be a major blow to Bitcoin, possibly triggering an immediate 20% plunge. The opposition is strong for this regulation and will likely be dragged over a lengthy evaluation process.
MicroStrategy purchased about 205 bitcoins for $10.0 million in cash with an average price of $48,888 per Bitcoin. The size of the purchase is relatively small but a sign that many cryptocurrency traders are probably looking to scale back into Bitcoin.
