Equities, especially the reopening stocks, benefit from encouraging news that the omicron symptoms are rather ‘mild’ and that the People’s Bank of China loosens its purse’s strings to provide support to the Chinese economy which is being shaken by a terrible property crisis, along with the coronavirus and the broad crackdown on its most valuable tech companies.
Of course, yesterday’s rebound is not necessarily a sign that a further and a sustainable recovery is underway, as the delta variant is presently wreaking havoc across the globe and the market volatility remains high.
Also, no headline addresses the major concern of the week: the rising US inflation, which is a big threat to the investor mood, as the US CPI data is due Friday, and the expectation is an advance to a strong 6.7%. The latter means that we could see wild mood swings into the second half of the week.
Gold has been in retreat during a period of extra low yields and rising inflationary pressures. Therefore, there is little reason it would rebound now that the US yields press higher, and the inflation expectations will likely start easing with prospects of a tighter Fed policy and easing commodity prices. We should continue seeing a solid resistance into the $1800 mark.
Evergrande
News that the Chinese Evergrande took another 20% hit yesterday didn’t have a material impact on the market mood; it only boosted the expectations of a dovish PBoC at a time the Federal Reserve (Fed) is seen doing just the contrary.
The latter also means that either the broad price action doesn’t reflect the risk of a domino effect from an eventual Evergrande fall, or the cheap PBoC liquidity is sweet enough to cover up the bitter taste of Evergrande news.
Bitcoin
With the improved risk sentiment, we see the price of Bitcoin advance past the $51K mark. Bitcoin is a high-risk asset, however, there is clear evidence that Bitcoin is paving its way to the traditional finance, and that institutional investors are increasingly on board. It still doesn’t make it a hedge against inflation, nor a safe haven, but it makes it a stronger alternative investment vehicle where we could see the size of one-off drops reduce over time.
