An unconvincing rebound

Stock markets are back in the green on Tuesday but already we are seeing frailties in the rebound, with Europe having given back a chunk of its earlier gains. The run into the close may provide some comfort.

These are nervy times for the markets, with surging Covid cases – particularly here in the UK – and inflation concerns dampening the optimism that we’ve seen at times this year. Vaccines should ensure case numbers don’t lead to the level of fatalities and lockdowns we’ve seen over the last 18 months but if that false sense of security also encourages greater risk-taking – like removing all restrictions during a surge, for example – the second half of the year may not be as bright as many hoped.

Inflation makes life a little harder for policymakers as they debate how transitory it is and at what point action might be necessary. This perhaps complicates the belief that central banks will always have the markets back. Should the price pressures persist, policymakers’ hands will be more tied than they’ve been for some time.

That being said, this isn’t the time to panic and I would be surprised if we see too strong a reaction in the markets. We’re only seeing a very minor pullback at this stage and that’s perfectly healthy. Policymakers have plenty of time to determine the risk that inflation poses and what, if any, the response should be.

Bitcoin below USD 30,000 but showing some resilience

Bitcoin has fallen back below USD 30,000 for the first time in almost a month and we’re seeing losses across the crypto space today, perhaps a sign of more expected downside ahead. This has long been viewed as a key psychological level for bitcoin so it could be argued that it’s shown a fair amount of resilience, given the fairly limited sell-off, by its own standards.

As we saw last month, a move below USD 30,000 doesn’t guarantee we’ll see large losses but we may start to see nerves tested. Crypto bulls may even be encouraged by the apparent resilience so far, although the trend over the last couple of months doesn’t look too favourable.

It may not take much for the sell-off to gather momentum and big losses appear and it won’t be long until the importance of USD20,000 is being discussed. It could make for an interesting, albeit nervy, few weeks for crypto fans.

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