Bitcoin jumps, stocks steady ahead of G20
All that glitters is not gold. Bitcoin is
sparkling again but beware…breakdown’s coming up ‘round the bend.
Bitcoin jumped above $11,000, taking it to its highest level since
March 2018. Futures are back down to $10,855 around send time. Investors are
ignoring what happened the last time we saw parabolic rises like this. Is it
different this time? No, but people have short memories. Facebook’s Libra white
paper may have stoked renewed interest in cryptos at a time when the buzz had
Bitcoin is more mature etc,
but the fundamentals of this scheme remain unaltered. What I would say is that
arguably big money is starting to view this differently and think it could be
very costly to ignore if they get left behind.
It may also be that the
sharp liquidity boost we’ve seen from
central banks is helping bitcoin. As we noted last week, it was only a matter
of time before the $10k level was taken out it and now ultimately a retest of
the ATHs near $20k looks very plausible.
Once this market builds up a
head of steam, it’s hard to stop it. As previously argued, this is a big
momentum play and the more buzz there is, the more that traders will pile in
behind the rising wave. Bears could get burned before the market turns – maybe
better to wait and let it fizzle out, which it will eventually. The more it
rallies, the bigger the blow-up when it comes. However, we should expect some
pullbacks and retracements along the way.
Stocks are maybe looking a
little softer with the S&P 500 easing off its all-time highs on Friday and
we’ve had a mixed bag from Asia overnight. Japan closed a shade higher at
Futures indicate European
shares are trading on the flatline as investors take a breather and look ahead
to the G20 later in the week. FTSE 100 finding support at 7400, with resistance
Coming up this week the G20 is centre stage for markets. President
Donald Trump is expected to meet Chinese counterpart XI Jinping at this week’s
G20 meeting in Osaka.
Last week Mr Trump tweeted:
“Had a very good telephone conversation with President Xi of China. We will be
having an extended meeting next week at the G-20 in Japan. Our respective teams
will begin talks prior to our meeting.” No one thinks the US and China will do a deal in
Osaka, but there is some hope that we will have a positive development that
marks a shift in the rhetoric and a re-energising of talks following the
breakdown in the recent discussions.
Iranian tensions are not
going away, providing some support for oil. Brent was trading around the $65
mark, with WTI at $58. Fundamentals remain bearish but the uncertainty in the
Middle East, specifically the risk of a closure of sea lanes, is enough to keep
crude above water.
Since last week we’ve had
news of the US launching a cyberattack on Iran and warnings
from Iran about what a war would mean. Expect lots of turbulence from this but
ultimately it does not look like the White House is spoiling for a fight. The
risk is, as ever, in a miscalculation.
Gold remained firm, holding
above $1400 as a weaker dollar combined with dovish central banks kept traders
happy to bid up the metal. Geopolitical tensions may be a small factor, but
ultimately gold has huge negative correlation with real yields, which have come
right down. Friday’s move off the lows later in the session were key and the
bull trend remains intact. A rebound in USD could trap bulls.
The dollar is softer with
the euro and sterling holding gains. The euro is holding at a three-month high
around 1.1380 – look for a push to 1.14.
Trading around 1.2760, GBPUSD is facing stiff resistance from previous
highs and a big Fib level coming in, so we need to see this level breached on
the upside to be more confident that the pound can maintain its gains.
Coming up this week – Fed speakers and the PCE inflation print will keep the FX market interested.