Stocks pull backs, bitcoin vulnerable

Stocks dip on higher yields

US futures have turned negative, with European stock markets reversing earlier gains as rising yields continue to weigh on sentiment.

Jerome Powell’s soothing tones and some positive results from J&J on the vaccine front had given markets a boost late Wednesday, going into today, but already we’re seeing that fade. Despite Powell’s assurances, investors are growing increasingly convinced that higher inflation will prompt central banks to tighten sooner.

Yields are rising across the board, a sign of confidence in the global economy to recover powerfully in the post-pandemic world. But it’s also a massive headache for central banks keen to remain extremely accommodative in the early stages of the recovery. They have a job on their hands if we continue to see yields rising as they are.

The risks of a taper tantrum are rising, which is why we’re seeing this unease in the markets. They’re still holding up quite well under the circumstances, the rally has simply stalled at the moment, but nerves are clearly evident. Tech isn’t holding up quite so well, with the Nasdaq seen underperforming once again today.

Sentiment may face a number of tests this week if we do see inflation appearing in the data. Even if it is driven by base effects or by other temporary factors, investors may take some convincing that the Fed and others aren’t going to be tempted to pull the trigger early in order to rein it in.

Only a matter of time

Bitcoin appears to have consolidated over the last couple of sessions close to USD50,000 after plunging earlier in the week in the aftermath of Elon Musk’s admission that it does “seem high lol”. The higher the price goes, the more of a target it’s going to have on its back, with Janet Yellen the latest to take a swipe this week. I’m not convinced either of these are going to have a lasting impact on the price and it’s maybe even a little surprising it hasn’t bounced back already. I’m sure we won’t be waiting long.

For a look at all of today’s economic events, check out our economic calendar.

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Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.