Bitcoin was driven to fresh record highs overnight – it traded above $47,000 – on the news that Tesla bought $1.5bn 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 too.
“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,” commented David Madden, market analyst at CMC Markets UK, this morning.
“Four months ago, PayPal announced it would facilitate Bitcoin payments, which gave the cryptocurrency a shot in the arm,” he told City A.M. this morning.
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Biden stimulus
Equities in Europe and the US posted respectable gains yesterday due to hopes that Joe’s Biden government will have the ability to bypass Republican politicians and introduce the proposed $1.9 trillion spending scheme.
Biden announced a $1.9 trillion stimulus plan before he was inaugurated as US president but since he took office, Democrats have been negotiating with Republicans in relation to the size of the spending programme. A group of Republican senators were pushing for a $618bn plan, which was obviously nowhere near Biden’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,” commented Madden.
“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,” he said.
“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.”
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Janet Yellen
Biden has appointed former Fed chair Janet Yellen as Treasury Secretary – which stock markets liked. Over the weekend, 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 hour months, but the remarks from Yellen resonated with traders. US equity markets hit record highs again last night,” Madden continued.
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 today.
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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,” Madden recalled.
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,” he said.
Gold has traditionally been a popular inflation hedge, Madden continued, as he pointed out that 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.
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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.
German data
At 7am UK time today, German trade data will be posted. Madden said “the consensus estimate” is for a surplus of €15.9bn, down from €16.4 bn in November. Exports are tipped to contract by 1 per cent, down from 2.2 per cent growth in the previous month, imports are predicted to be -1.1 per cent, which would be a big difference from the 4.7 per cent 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,” Madden concluded.
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