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Over the last 8 months we have become used to the first cryptocurrency showing more and more highs. Appetite comes with a meal. And even a little slippage starts to get annoying, causing bewilderment and questions.

BTC

The problem is particularly acute when other altcoins are growing. And most notably the second most capitalised cryptocurrency, ETH. Bitcoin seems to have stalled and is unable to continue moving north.
Is that really the case? No, it isn’t. If you look at the chart, you can see that the previous high, near $65,000, was shown just 20 days ago. This was followed by a sharp pullback and a new rise. At the moment, BTC is about 12% below its all-time high.
Therefore, the impression that bitcoin is not growing is formed by the previous very rapid growth of the first cryptocurrency. It is now in a corridor, gathering strength for another jump upwards. The main obstacle is the perception that BTC is already too expensive.
Indeed, for those investors who hold positions starting at $3-10k, buying up at the current price of $55-60k seems insane.
However, during that time a lot of investors and new money came into the market and entered BTC at much higher prices. And for them a price of 55-60k does not seem so high.
Another thing is also relevant. Right now new investors and funds are entering the market again. And right now they see a price that suits them (and if it didn’t, they wouldn’t have come to the market). Moreover, this price, as we noted above, is below the all-time high. And so there is an entry into the market by trend on a pullback.
The only thing that could shake bitcoin in the medium term is a real fight against inflation by the US Federal Reserve. But as we can see, as long as more money keeps coming into the market, there is no talk of a rate hike.
Therefore, the risk/reward ratio, with a horizon until the end of the year, continues to be positive for buyers of the first cryptocurrency.

08.00 Manufacturing orders in Germany for March
11.00 EU retail sales in March
13.00 Bank of England interest rate decision

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Tuesday’s trading was a cold shower for bulls in almost all global markets. Why the fall? Maybe on increased escalation between China and Taiwan? Tightening lockdowns in some countries around the world? Perhaps the market was severely overheated?

S&P 500

The reason for sell-offs of all kinds of assets was the words of US Secretary of Economy Janet Yellen.
“Rates could rise to stop the economy overheating”
This seemingly innocuous phrase was enough to send stocks plummeting. Let’s get to the bottom of why that happened.
Traders who closely follow the rhetoric of the Fed leadership are well aware of the following. This body can claim white is black for a very long time, and then change its mind completely in just 1-2 weeks.
In this case the situation is repeated. The Fed chairman claims that dollar inflation is virtually non-existent. Or it is so low as to be negligible. This means that rates will remain low for a long time to come. It also means that every month new, unsecured money will be injected into the economy. However, it is true that it hardly ever reaches the economy, it is fed directly into the stock exchange.
But what if you ignore the words of the Federal Reserve Chairman and look at the situation with your own eyes? A very different picture emerges. The prices of many manufactured goods have doubled in a year. And that’s with a massive drop in production due to the COVID-19 epidemic.
How quickly will this be reflected in consumer inflation? There is a time lag due to the production cycles of individual companies.
However, it is clear that if a car manufacturer buys metal at twice the price, the cost of production will increase anyway. And so it is on all counts.
On May 4 Yellen just said what everyone already knows. It is a trial balloon thrown by the US leadership for 2 purposes. To see the reaction of the stock markets. And also to prepare the ground for winding down the massive injection of unfunded money into the economy.

10.00 EU Composite Manufacturing Index for April
14.15 ADP US private sector employment report for April
16.00 US ISM service sector activity index for April

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

We have previously drawn the attention of our subscribers to the following fact. At the beginning of this year a large number of experts were expecting strong movements of the Euro/Dollar pair. The optimists saw the level of 1.30. The pessimists thought that the first target would be reached at 1.10, and the second one would be the parity level.

EURUSD

Our view is that it could be exactly the opposite. The EUR/USD will not show strong movements and will move in a low corridor throughout the year.
Yes, fundamentally the USD should rise against the EURO. The reasons are threefold. On the one hand the US economy is recovering faster than the European economy. On the other hand the pandemic in the US will also end earlier. The third reason is the big difference in yields between U.S. and Eurozone bonds.
However, all of this is overshadowed by the fact that the US government continues to print huge amounts of money. Yes, central banks all over the world are printing it, but not as much as Americans.
As a result the Euro/Dollar pair simply can’t go far in one or the other direction. Right now, judging by Friday’s red candlestick, the upward movement is fading. You might expect a sideways move or a drop below 1.20.

The optimal solution for the rest of the year might be to trade in a corridor. We buy on the lows and sell on the highs. However, we also need to consider swaps. If we enter trades with small orders + averaging, the more correct strategy looks like this. Only selling the EUR/USD pair and waiting for a few figures to make a profit.

08.00 German retail sales for March
16.00 ISM Manufacturing Index for April in the US
20.20 J. Powell (Fed) speech

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Markets waited with great apprehension for the outcome of Wednesday’s Fed meeting. Even the slightest hint that the Fed is concerned about rising inflation would be enough to sharply dump all risky assets.

EURUSD

However, once again we have not heard any hints. The chairman of the Federal Reserve has pretended that there is no inflationary pressure on the economy. This allows a new $120 billion to be injected into the market every month.
More and more questions are being raised on the following point. The Fed started a quantitative easing programme in response to the coronavirus pandemic and the fall in GDP in 2020. But today things are different. GDP is rising and unemployment and business data are getting better and better. Then why do we need to print so much money, since everything is fine? The Fed Chairman responded that growth is visible in the economy, but it must be sustained and so far things are not so clear-cut.
At the same time another bubble is being inflated in the real estate market. Prices in many states have long surpassed the pre-crisis levels of 2008 and continue to rise. What this can lead to, we all remember very well.
It seems to us that all of the Fed chairman’s excuses are designed to hide the sad truth. That is that the main challenge is to buy new US debt (treasuries). Without the support of the Fed, interest on it would skyrocket, making it extremely expensive to service. In fact, the US government and the Fed are working in tandem and have no contingency plan.
As a result, there is no reason for the stock markets to fall and any corrections will still continue to be bought out.

03.00 China service sector business activity index in April
11.00 EU first quarter GDP
11.00 EU consumer price index for April

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The strong growth in bitcoin and US stock markets has somewhat overshadowed the current situation in commodity markets. For example, an index such as TRJCRB (Thomas Reuters/Jeffries Commodity Price Index) is showing its highest growth in 5 years, and is already set to go beyond the five-year highs.

OIL.WTI

What does this movement even mean? To make it clearer, the CRB index includes all the major commodities of world consumption. They are oil, orange juice, cotton, sugar, aluminium, gas, coffee, gold, silver, nickel, wheat and about ten other commodities. A rise in this index indicates that most of these commodities are increasing in value. From this we can conclude that global inflation is already beginning to accelerate around the world because if wheat increases, all the derivatives of this simple good, such as bread, fodder and alcohol, will also increase. Rising prices for basic commodities will drive up inflation across the board, and the people with low incomes, for whom the cost of food is critical for survival, will be the first to suffer.
How should we deal with this situation? It is accurate to say that if the prices of the bulk of commodities rise, the prices of the rest of the commodities will also rise.
In addition, there are signs of limited supply on the markets. There are supply cuts, export bans and many other food-related restrictions.
As a result, we see that even during a pandemic, when the whole world has limited consumption, demand is at very low levels. However, in parallel, we are seeing record rises in the prices of all the world’s major commodities. This can only mean that the pumping of huge amounts of money into the world economy is already in full swing and sets the stage for severe inflation in the near future.
If you trade commodities, commodities are likely to continue rising. It will also be a positive signal for those who trade in the stocks of companies that sell these commodities. Primarily crop companies, gold producers and oil producers.

11.00 EU consumer confidence in April
14.00 IFO Economic Expectations Index for Germany April
14.30 Harmonised German Consumer Price Index YTD

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

While there is a lull in the markets because everyone is waiting for today’s US Federal Reserve press conference, we will try to take a look at cryptocurrency. One of the most interesting things that has happened recently is the acceptance of bitcoin by JPMorgan, which just 4 years ago promised to fire any employee who bought the cryptocurrency.

BTC

Why is this such a significant development? JPMorgan is the latest major bank to recognise cryptocurrency as a separate asset class. The bank is about to launch a special bitcoin fund that will allow customers to buy cryptocurrencies and store them in their bank accounts.
It’s clear to everyone by now, that none of the big whales want to miss out on the opportunity to make money and provide their clients with the latest tools, though mostly useless. After all, having thought out good speculative schemes one can perfectly try to earn in this market with rather low capitalization.
The excitement about bitcoin investments is growing again. The Coinbase IPO added 2.5 million new users in a matter of days. Cryptocurrencies are getting a lot of publicity, but it’s very likely that most buyers of bitcoin as an investment don’t know what it’s even for.
What is bitcoin for? What are its advantages or disadvantages?
One might assume that bitcoin is decentralised and can be transferred to anyone. Yes, you may agree, but in real life the cryptocurrency transferring costs at least 2-3% from transfer value and you may lose additionally 10% because of strong exchange rate fluctuation, because of strong volatility by the time when transaction will reach the recipient. This is more of a disadvantage than an advantage.
The blockchain depends entirely on the miners. Most of them are concentrated in China. China is now busy developing the digital Yuan. They don’t need any bitcoin. Therefore, any blocking of Chinese miners will very seriously affect the speed of transactions, as well as the bitcoin exchange rate. There were already cases, when due to blocking of 20% of miners the commission in network reached $70, and cheaper transactions could wait for up to a week.
Overall, bitcoin itself is growing more on hype than on its usefulness. Hardly anyone can now name a few important points about what bitcoin is actually useful for humanity. One of the most important is that it gave a boost to the blockchain industry as a certain technological process, but nothing else comes to mind. So think a lot about why you need bitcoin in your investment wallets.

03.30 Australian Consumer Price Index Q1 2021
16.00 Address by ECB head K. Lagarde
20.00 US Federal Reserve interest rate decision
20.30 Press conference of US Federal Open Market Committee

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Last trading week was marked by Biden’s high-profile statements about a new tax policy in the USA. These announcements panicked stock markets immediately after the Wall Street Journal article was published. All major indices sold off as capital gains will be the first to be affected.

Dow Jones

What is the purpose of this tax reform? Biden’s first aim is to reduce the difference between taxes on income and taxes on income from financial assets. Because of the strong growth in the value of companies, as well as increased income from financial instruments, the capital gains tax rate could double, clearly hitting the wallets of the rich.
Biden’s second goal is to sort out public finances and increase government revenues. The treasuries reacted very quickly to this move with a positive increase.
What will happen to the markets after such innovations? There is no official release yet, the markets haven’t priced these changes in, but they will definitely do so when they wait for the publication. Therefore, a definite sell signal is already forming now.
Also in the medium term, this asset type is becoming less attractive to large and foreign investors. Investments in the economy are likely to slow down, which should have a negative effect on the value of the US dollar as well.
There is no positive news at all for the dollar to strengthen at the moment. Strong growth in retail sales in the UK as well as good PMI data in the EU do not give it a chance. Therefore, we should expect the Euro and Pound to strengthen against the USD in the near future.
It is more likely that such a Biden tax plan will reduce the risk of overheating the US economy and a strong rise in inflation. Therefore we are unlikely to see a positive speech for the USD at the next Fed meeting and the bailout policy will continue.

09.00 IFO economic expectations index in Germany for April
14.30 US Durable Goods Orders for March

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

While the stock market situation is quite clear and predictable, the energy market is not so clear-cut. There have been no strong movements in the last month. Oil demand has been stable and of little concern. Ahead is summer and possible weakening due to ongoing vaccinations. Will this affect oil prices or not?

OIL.WTI

Pandemic times will probably be the most difficult for all oil traders. For a long time, they have been using enough indicators and information to make decisions. These are seasonal demand, air traffic, the general state of the economy, electricity consumption, etc. Based on these parameters, it was possible to predict the price of energy in the coming months with a good degree of probability. Now each month is completely unpredictable. All the statistics that used to be used no longer work.
Further adding fuel to the fire is OPEC+. From the structure that is supposed to set the tone, OPEC+ only reacts to current changes. Meetings now take place every month and production quotas are revised every month. At this pace, it is very difficult to readjust quickly and forecast anything, much less plan profits, business development investments and other strategic indicators. Also, such actions directly affect the market volatility of petroleum products.
The next few months will be mixed for energy markets. Forecasts from leading analysts are widely divergent. Goldman Sachs sees the price per barrel of WTI oil at $80 as early as this summer. But the US Energy Information Administration plans average price of one barrel to reach $61.
The US may also contribute to the oil market. In order to meet the demand the USA may increase production of oil, thus making another correction to the overall market.
Another nuance for oil may be rising inflation. Prices are quoted in US dollars. If the dollar starts to weaken a lot, it will in any case support oil, which will definitely be reflected in the quotations.
And another problem for oil – India is reporting 384,000 COVID-19 infections a day. This is the highest number ever recorded in that country. India could well go into quarantine, which is bound to affect the price.
There are challenging times ahead.

01.30 Japan National Consumer Price Index YTD
08.00 Retail sales in England YTD
15.45 US Composite Business Activity Index for April

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

There has been a lot of attention lately to inflation, which is already starting to accelerate in the US and therefore around the world. Is it good or bad for the economy? What can the enormous injection of money into the economy lead to anyway?

Dollar Index

The latest statements from the US Federal Reserve said that money will continue to be printed and that interest rates will remain at low levels for a long time to come. Already now it is noticeable that all these actions are accelerating inflation in the United States. It is possible that inflation in the USA could rise to 4% in the coming months, which even the Fed admits.
For the USA and other developed countries this is not a problem in principle. A sustained increase in inflation together with low interest rates creates a good climate for growth of the stock market and recovery of the labour market. The only thing to watch is the rhetoric of central banks. As soon as we see the first signs of stimulus winding down, markets will start to take profits, which could end badly for those who bought at the highs.
As far as developing countries are concerned, the situation is a little different. According to the laws of economics, if inflation starts rising in a developed country, it will rise even faster in a developing country. This is already evident in countries like Brazil, Nigeria and Russia. Those countries need to get ahead of the curve and cut stimulus earlier and raise interest rates. Emerging market economies are more exposed to risk as central banks find it harder to operate with financial instruments.
There is another interesting piece of information. Reuters has obtained the correspondence between the Republican Senator Scott and the Fed chief Jerome Powell. It reveals that Powell and the Fed will work closely to achieve maximum employment and stable prices in the country. In other words, it is a confirmation that the Fed will continue to buy $120 billion worth of Treasury bonds every month. And the Senator wrote that he was very unhappy with Fed policies that would hurt many families and trigger serious price increases.
What it means for us is that the Fed is not going to change anything in the near future, although important public figures are already appearing who are unhappy with its policies. Therefore, the markets are likely to continue rising, as well as precious metals, especially gold, which already shows good dynamics.

13.45 ECB interest rate decision
14.30 US initial jobless claims
14.30 ECB press conference

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

In 2018, China launched a gold-backed futures contract for oil in renminbi. This was done to see how attractive the renminbi would be as a reserve currency, which China has long wanted to counter the US dollar. A fortnight ago, the IMF reported that the global share of global foreign exchange reserves denominated in US dollars had fallen to 59%, a 25-year low since 1995. How do you wonder what China is doing now?

Gold

Just last week, China announced that it is launching a “digital yuan” very soon. Firstly, this makes China a pioneer in the world of digital currencies, far ahead of other countries. Second, the digital currency is likely to be backed by gold, making it a very strong financial instrument.
The People’s Bank of China has always controlled the amount of gold imported into the country. More recently, China has allowed all banks to import large amounts of gold, increasing their quotas many times over. Such news primarily affected the growth of gold. There are reports that China will buy USD 8.5 billion worth of gold in April and May.
Apparently China is already planning an operation to take over the reserve currency market. To do so, China needs to frame the US dollar, try to sell all US debt and bring the yuan to the forefront. It’s a complicated scheme, but it’s doable.
The dollar problem scenario is most likely to include a nascent inflation in the US. When the dollar falls hard in stock markets, Chinese financial instruments will be used to push up the inflationary mechanism in the United States and reduce confidence in the dollar. After all, the holder of huge US debt could easily manipulate these finances.
Given the complexity of the process, the possibility of a severe global financial crisis that would be worse than the problems of 2008, with the resulting collapse of the global financial system, is not out of the question.
As a consequence, China will have to ensure the security of its own currency and revert to the gold backing of the renminbi. Therefore, gold is likely to be bought now in order to make the RMB surplus available for the whole world public, already stable and secured in gold. In addition, a “digital RMB” backed by gold could be offered. Such an asset could rival Bitcoin in popularity in the future.
If everything goes according to plan in China, the price of gold will continue to rise, because China will need a very large amount of the precious metal for realization of all the plans.

08.00 UK consumer price index for March
12.30 Address by Governor of the Bank of England E. Bailey
16.00 Bank of Canada interest rate decision

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.