The Treasury market will not ignore rising optimism that is being seen across Wall Street. Several banks (HSBC, PIMCO, Bank of America, Morgan Stanley, and Deutsche Bank) are raising their US GDP growth forecasts for 2021 after the Biden administration under-promised and over-delivered on COVID vaccines for Americans. Biden’s claim that vaccine doses could be available for all adult Americans by the end of May is great news for the reopening of the economy.
The reopening trade will get tested as some states rush to reopen and abandon restrictions as virus mutations spread throughout the country. Texas Governor Abbott’s decision to lift its mask requirement and would allow businesses to fully reopen will provide an immediate boost to the outlook. While many call the Texan decision premature, many mayors and county leaders will still urge residents to comply with the recommendations from health experts.
Skyrocketing Treasury yields will test the patience of the Fed. Despite tremendous COVID vaccine progress, the economic recovery is still fragile and rising yields could trigger illiquidity in the market and that could have spillover effects and a negative impact across other markets. The bond market is selling off again as it appears, they want to make sure they force Powell’s hand in acknowledging he is watching the Treasury market. Fed’s Brainard telegraphed that concern, but investors need to hear it from Powell.
The 10-year Treasury yield is up 8.6 basis points to 1.476%. If yields continue to rise like this the dollar will see some support. The day of reckoning will come for the dollar, but that might happen until Europe has a better handle with COVID vaccinations.
UK Chancellor of the Exchequer Sunak’s budget signaled the UK economy is almost ready to leave crisis mode. The FTSE 100 is outperforming the European bourses as Sunak’s budget is viewed as providing another boost to the economic recovery. The UK economy could return to pre-pandemic life in the middle of next year and that should keep optimism flowing into UK assets. Sunak’s extension of furlough scheme was telegraphed, but some traders were disappointed with the corporate-tax increase rollout.
The UK will have a great 2022, but the economy will return to trend in 2023. The withdrawal of stimulus and higher taxes will complicate the outlook after next year.
Bitcoin is charging higher after cryptocurrency traders brushed off some cautious comments from Gary Gensler’s confirmation hearing for SEC chair. On Tuesday, Gensler noted that making sure crypto markets are free of fraud and manipulation is a challenge. Comments at Senate confirmation hearings are always about surviving the process and not necessarily a clear signal on how one will act. Gensler should still be viewed as crypto-friendly and supportive for a fostering environment for cryptocurrencies.
Now that Citi and Goldman Sachs are on the crypto-train, expectations are high for more big banks to hop onboard. Despite a strong move in Treasury yields, bitcoin is still holding onto a good portion of the day’s gain. Bitcoin momentum could get another leg if Fed Chair Powell delivers some calm in the bond market.
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