A wild end to the week

It’s a bit of a wild end to the week, with stock market jitters returning in force after yields spiked again on Thursday.

As the morning progressed in Europe, yields pared gains which has alleviated some of the pressure on stock markets but that seems to have reversed itself once more and they find themselves comfortably in negative territory, with US futures are pointing to a similar open.

The rapid rise in yields this week has come despite a perfectly competent performance from Fed Chair Jerome Powell in front of the Senate Banking and House Financial Services Committees. He gave his best assurances and it’s seemingly fallen on deaf ears.

I expect we’ll see a lot more of this from central banks in the coming weeks if stocks go into freefall. Despite a couple of days of losses, we’re very much not in that territory yet – this is not a taper tantrum – and policymakers may be perfectly comfortable with what’s happening.

We are heading for a super-charged recovery, after all, thanks to the vaccine rollout and all the fiscal support measures over the last 12 months. Not to mention the desperation of people to escape their now beautifully decorated homes.

Investors should not need the central bank to hold their hand much longer and I expect by the end of the year, taper discussions will and should be starting. Of course, a lot can happen in that time and maybe that’s too optimistic at this stage but the point is simple. If Yellen envisages full employment by next year, central banks shouldn’t be employing crisis mode monetary policy when that happens.

But that’s a message better employed when the economy is fully open and firing, and the outlook is much clearer. And markets may be better positioned for it at that point. Right now, a lot of positivity is priced in and there’s frothiness everywhere you look. Not the time for taper talk or the tantrum may become self-fulfilling.

Today presents an opportunity for investors to lose their heads a little once more, with income, spending and inflation due from the US. The inflation number is also the Fed’s preferred measure which obviously carries that bit of extra weight. An above expectations reading will be interesting and could lend itself to a volatile end to the week.


Bitcoin caught up in risk-off markets

Bitcoin’s correction is deepening on Friday, after the crypto failed to generate fresh upward momentum following the sell-off earlier in the week. I’m sure Elon Musk is getting a few funny looks from Tesla shareholders after his admission that it’s looking a little expensive.

It may be tempting to draw a link between rising yields and cryptos but I’m not buying it. If yields keep rising, I don’t envisage bitcoin falling off a cliff. Despite people’s best efforts to convince otherwise, it is not an inflation hedge.

It is a market that was ridiculously overbought and will probably be so once again in the not-too-distant future. Even if yields keep rising. A full taper tantrum may catch up with it but bitcoin is a risk asset and could be dragged lower with the rest of them. Unless, of course, we’re told it’s a safe haven again. I lose track of what it’s currently claiming to be.

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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.