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Positive equity sentiment persists, bitcoin booms

Equities in Europe and the US posted respectable gains yesterday due to hopes the Biden government will have the ability to bypass Republican politicians and introduce the proposed $1.9 trillion spending scheme.

Joe Biden announced the stimulus plan before he was inaugurated as US president but since he took office, the Democrats have been negotiating with Republicans in relation to the size of the spending programme. A group of Republican senators were pushing for a $618 billion plan, which was obviously nowhere near the president’s target.

Last week, Democrats decided to introduce a measure that could see them implement the relief package without having to obtain support from the opposing party. President Biden has form when it comes to seeking consensus from across the aisle but this time around it is believed that he wants to act quickly so he can provide assistance to those who are financially struggling the most. On a side note, a new president can’t be blamed for wanting to spend big in this environment as a way to getting his premiership off to a good start. Mr Biden has appointed former Fed chair Janet Yellen as treasury secretary – which stock markets liked. Over the weekend, Ms Yellen claimed that full employment might be achieved by the end of next year if the $1.9 trillion stimulus bill is introduced. There are numerous things that could derail the US’s economic rebound, such as new variants of the coronavirus that can’t be controlled by existing vaccines, so it is extremely difficult to predict what the jobless rate will be in almost 24 months, but the remarks from Yellen resonated with traders. US equity markets hit record highs again last night.

The positive sentiment from Wall Street has lifted equity markets in Asia, China’s CSI 300 hits its highest level since 2008. European indices are set for a slightly positive open.  

Bitcoin was driven to fresh record highs overnight – it traded above $47,000 - on the news that Tesla bought $1.5 billion worth of the cryptocurrency. In the same announcement, the electric vehicle manufacturer revealed that it intends to accept the digital currency as a method of payment. One of the criticisms of bitcoin is that far too few vendors accept it as legal tender, but as more well-known names accept it, that should help bring it a step further to becoming more mainstream. Four months ago, PayPal announced it would facilitate bitcoin payments, which gave the cryptocurrency a shot in the arm.

Oil extended its recent gains yesterday as a combination of hopes for a US stimulus package combined with ongoing mild supply concerns supported prices. Should the Biden-led government fast-track the spending programme that should spark higher demand for the energy in the months ahead. Last week, US oil inventories fell to an 11 month low, which could be interpreted as rising demand for oil. OPEC+ maintained their outputs plans, which wasn’t exactly a surprise.

In keeping with the commodities theme, metals rallied yesterday because of the chatter about the US spending scheme. Lately there have been creeping concerns about higher inflation being in the pipeline on account of all the money that has been injected into financial systems from central banks and governments. Gold has traditionally been a popular inflation hedge. Dealers snapped up the yellow metal for fears that higher inflation is on the horizon. Industrial metals, like copper, silver and platinum rose too as economic activity should increase as a result of the $1.9 trillion relief programme.

The yields on US government bonds moved up also because of higher inflation fears and at the prospect of higher growth. In the first half of yesterday’s session, the US dollar index recovered a little from the sizeable fall it endured on Friday, but the rebound fizzled out. On Thursday, the greenback hit a two month high, a failure to retest the recent high could lead to the currency falling back into its wider negative trend.  

At 7am (UK time), German trade data will be posted. The consensus estimate is for a surplus of €15.9 billion, down from €16.4 billion in November. Exports are tipped to contract by 1%, down from 2.2% growth in the previous month, imports are predicted to be -1.1%, which would be a big difference from the 4.7% growth registered in the previous update. Germany is a major exporter so a poor reading could suggest that demand in Europe and beyond is weak. In a similar fashion, the country is the largest economy in the EU, so a negative imports metric would paint a picture of waning demand.        

EUR/USD – Friday’s candle has the potential to be a bullish engulfing and if it moves higher from here, it could target the 50 day moving average at 1.2145. Beyond that, it could retest 1.2349. A move below 1.1952, might bring 1.1800 into play.  

GBP/USD – since late September it has been in an uptrend, it recently hit a 33 month high. If the positive move continues, it could target 1.4000. A pullback might find support at 1.3549, the 50-day moving average.   

EUR/GBP – has been in a downtrend since mid-December and further losses might target 0.8670. A rally from here could see it hit 0.8996, the 200-day moving average.   

USD/JPY – Friday’s candle has the potential to be a shooting star, a move lower could see it hit 103.95, 50-day moving average. Should the wider uptrend continue, it might hit 106 or 107.     

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