News

We wrote extensively this autumn about the upcoming US presidential election. One of them dealt with the difference between the conservative and Democrat approach to the economy. And now, the Republicans’ worst nightmare is about to come true.

S&P 500

A reminder of what this was all about. Republicans have traditionally been in favour of tax cuts. This leaves extra money for businesses that increase production and create new jobs.
Democrats like to raise taxes in order to use them for social programs. Naturally, business doesn’t like this, production growth and service delivery go down. Unemployment gets a little higher. However, this is compensated for by those same social programme payments.

What has Donald Trump done during his years as president?

Apart from the many scandals that the whole world remembers, Trump did cut taxes in the US in a big way (although this is mostly remembered by Americans themselves). The economy grew by leaps and bounds on this cut and unemployment fell to multi-year lows. Of course, the pandemic turned everything upside down, but that is another story.

Joe Biden’s Business Horror

The other day a bill was signed into law for the biggest economic stimulus in history, to the tune of USD 1.9 trillion. This could lead to a real budget deficit of 15% in 2021. What is a budget deficit? It means that expenditures exceed revenues. And where does the revenue come from? That’s right, from taxes.
It makes perfect sense that Joe Biden’s administration plans to raise them. But the Democrats have decided not to be petty. According to leaked data, Americans are about to face the biggest tax increase in 30 years.
One of the main taxes shaping the budget is set to rise from 21% to 28%. It is a tax on profits paid by corporations. Added to this is an increase in tax rates on inheritance, capital gains, income of wealthy Americans, etc.
Who was doing something like this 30 years ago? Of course it was the Democrat president, Bill Clinton.
How does this threaten the US stock market, and subsequently the stock markets around the world? We invite you to ponder it today and tomorrow morning we will tell you what we think about it.

01.30 Australian Unemployment Rate for February
11.00 Bank of England Interest Rate Decision
13.30 US initial jobless claims for the week

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.

Once again we show our favourite chart for the pound/dollar pair. And the rising channel that we built on it long ago. And which remains unchanged until now.

GBP/USD

What do we see on the chart? Last time we paid attention to the fact that the pound broke the upper boundary of the channel. And we noticed that from the technical point of view, such a breakdown is most often false. And so it happened this time. The British currency turned around, and correction to the lower line of the rising channel began.
The price almost touched this line on Tuesday morning, and then sharply reversed and moved up. Sellers, who were playing from the upper boundary of the channel, lost their nerve, and began to take profit. And buyers also lost their nerve, so they went back to entering long positions.
Is the correction completed? And will we see another movement to the upper part of the channel, with the targets around 1.45 in the pair GBP/USD? More likely yes than no.
What is the main risk of this scenario? It is that the upward movement within this channel on the daily charts has been going on for about 5 months. It is a very strong trend which only extremely lazy traders have not identified. And a lot of buyers joined this trend.
Yes, we remember our target for the Pound/Dollar pair of 1.5 by the end of the year. But after all, that date is still 9.5 months away. From the “evil market” point of view, of course, we want to break the channel with an abrupt move down, take off a lot of stops. And then turn around and go back up again in the opposite direction. That is why traders, especially those with big leverage going long, have to be extremely careful.

11.00 EU consumer price index for February
13.30 Canada Consumer Price Index for February
19.00 US Federal Reserve 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.

Exactly one year ago, the start of the coronavirus pandemic caused Bitcoin to plummet to the $3800 level. At the time, most crypto-enthusiasts were very upset by the move and many considered leaving the crypto world. What do we see now? Bitcoin is breaking records and has whistled past the $60,000 mark.

BTC

One has to wonder if Bitcoin will have any correction at all in the near future, or if the trend is simply unstoppable. Is it even possible to find a Bitcoin equilibrium rate?
Too many questions arise when we try to analyse this cryptocurrency in any way. Bitcoin is not a company, it has no assets, it does not make a profit and it does not create anything revolutionary.
The value of Bitcoin is now shaped solely by interest in it. The more information is written about it in the news, the more it is available to buy, the greater the demand. Already in the US, the number of ATMs through which Bitcoin can be bought is growing at an incredible rate. This makes the cryptocurrency more accessible. The issue of allowing legal entities to invest in Bitcoin is also being addressed, because in most cases, cryptocurrency exchanges refuse to work with them and focus only on individuals. To do this, companies are created that offer access to cryptocurrencies without buying them. The company puts the value of the cryptocurrency into its share price, and now any other entity can easily invest in it.
Bitcoin is becoming popular at a record pace. More and more companies are trying to pick up on this trend and incorporate cryptocurrencies into their ecosystems. Most of the time, this trend is based on profits. Everyone wants to make money from the hype and the good trend, so they are doing everything they can to make it happen. As long as Bitcoin is in demand, its price is unlikely to correct significantly. The usefulness of Bitcoin in day-to-day use, be it for purchases or some kind of transfer, is questionable, though. Online commissions are as high as 2% of the amount, you pay less commission, you can wait 24 hours for transactions. The difficulty in creating wallets and the possibility of losing money because of a forgotten phrase does not make Bitcoin a tool for every day.
We should not forget that the cryptocurrency market still lacks serious regulation and is heavily influenced by the news background. If you smell another crisis somewhere, the cryptocurrency market will go down faster than any other market.

What’s in store for us today?

03.00 China Industrial Production Year-to-Date
03.00 Press conference by China National Bureau of Statistics
13.30 New York Fed Manufacturing Activity Index

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.

16.03.2020 – Special Report. Now the Bitcoin bulls are digging in their heels again: The first exchange-traded fund for BTC in the USA is about to be launched. Another important step towards acceptance in the broad financial market. Especially as the dollar continues to be blithely destroyed by vast amounts of fresh money. And with a Norwegian oil billionaire and even Goldman Sachs jumping on the bandwagon.

Index funds in the USA and Canada

Grayscale Investments is said to have already hired an entire team for the launch of the first authorised BTC ETF in the US, as Bloomberg reports. Grayscale has already offered the Grayscale Bitcon Trust, which buys or sells BTC at some point and does not directly follow the price; indirectly, an investment was already possible via Square, Tesla and Silvergate. Apparently, the US regulators have also received ETF applications from VanEck Associates Corp. and Bitwise Asset Management. Canada was quicker: the second ETF has just been listed on the Toronto Stock Exchange, and a third is already on the way, as Coindesk reports. CI Global filed an application for an Ether ETF in Canada in February.
Such index funds should further fuel interest in the e-currency. Because if the central banks and governments of the world ban Bitcoin and co. at some point, you can get out of the investment – albeit at falling prices, but still. Those who are invested in BTC are out of luck in the event of a trading ban.

More supply in Germany

Incidentally, Deutsche Börse has also recently expanded its offering for trading in cryptocurrencies. In future, investors will be able to trade financial products that are physically backed by Ethereum and Bitcoin Cash. Specifically, two ETPs from the provider 21Shares, which already trades a Bitcoin ETP and a Short Bitcoin ETP, will be included. The assets of the new ETPs exceed $100 million, according to 21Shares. The 21Shares Ethereum ETP is fully collateralised with Coinbase as an independent, regulated custodian for institutional investors, it said. The exchange has already offered such a product for bitcoin since June 2020.

Oil magnate immunises himself against financial crash

Moreover, the Norwegian oil billionaire Kjell Inge Rokke also believes that cryptos are the best defence in the event of disruptions in the financial industry and central banks. And just like in the oil industry, such a violent crisis will come – it is only a matter of time. His investment firm Aker ASA, which controls oil and oil service companies, is now setting up a subsidiary called Seetee – to trade BTC. The start-up capital is $58 million. To his shareholders, Rokke wrote that Bitcoin could very well plunge to zero – but it could also become the core of a new money architecture. It is not impossible that BTC could one day be worth millions of dollars.

Gutting the Greenback

Anyone who looks at the development of the money supply in the US likes to believe such forecasts. The dollar is being increasingly thinned out. And the chart below does not even include the new $1.9 trillion aid package. Michael Snyder of The Economic Collapse Blog said: “It took from the founding of the United States to 2020 for M1 to get to 4 trillion dollars. And then it took about one year for M1 to go from 4 trillion dollars to 18 trillion dollars.”

Of course, the floods of money will find their way into tangible assets whose price can only be manipulated with difficulty or not at all by the central banks. So in real estate, precious metals, land, commodities – and e-currencies.

Goldman builds trading desk

Finally, Goldman Sachs is working on rebuilding its cryptocurrency trading desk. The situation is different from the 2017 BTC bubble – there is strong institutional demand and from private banking clients, Matt McDermott, Global Head of Digital Assets at Goldman Sachs Global Markets Division, said in a podcast.

The example of China

Our conclusion: The acceptance of BTC is increasing. But the danger of a government ban remains. Unless, of course, the world’s rulers deliberately want to maintain a kind of reservoir for the floods of newly created money. This is what China once did under Deng Xiao Ping: With the economic reforms, the People’s Republic cranked up inflation. And allowed gold ownership again. Plus the private purchase of real estate. Just like in Russia during the oil boom of the early Putin era, a lot of money flowed not only into consumer prices, but also into the stores of value: gold, real estate and land. And also into the stock market. Moscow and Beijing thus let money flow out of the real economy and avoided the impoverishment of the masses and a revolution through rising food prices; at the same time, they created a middle class that built up wealth and is loyal to the rulers.
So: Maybe the US and Europe will also go this way – and legalise BTC once and for all. Which should shoot the price towards the sun. Bernstein Bank wishes you successful trades and investments!

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 stock markets are once again showing us new highs. Of course, buying such a market is a very risky thing to do. In fact, there is almost always a correction sooner or later from new highs. It is worth considering a few instruments that will not make you bite your nails in the next trading session.

Gold

First and foremost, gold is worth considering. We have noticed in past reviews that gold has lost quite a lot of ground since the beginning of the year and now looks the worst among commodity metals. But looking ahead, the current value could be quite attractive to buy. Inflationary expectations in the US, the next bailout packages in the US and the EU are seriously increasing the total money supply in the world economy. Sooner or later some of this money will flow into metal markets and since gold lags behind its peers in terms of growth and dynamics, buying it will become more attractive. Already we are seeing a slowing of the bearish trend and some semblance of a reversal at $1700/oz.
A second instrument that is perhaps underestimated is platinum. Platinum has been used as a safe haven metal on a par with gold for quite some time. Why consider buying platinum?
Firstly, platinum, like silver, is used in a wide range of industrial applications. It is an indispensable element in the automotive industry. Platinum is used in the manufacture of catalytic converters. It is logical to see that as the economy recovers, so will the production of cars with internal combustion engines. Hence the demand for platinum should increase. Platinum is also being used in the generation of clean energy, which is now gaining momentum.
Secondly, it so happened that gold and platinum were traded at parity. Now gold is one and a half times more expensive than platinum, which also gives a definite signal for a possible rise of the asset. If you look technically at the price levels of the platinum, it is worth noting a fairly dense range of variation of the daily price. This suggests that investors are trying to buy out almost all of the supply. They probably want to get on the train that will go up.
Of course, buying these metals will not be as profitable as investing in bitcoin, but at this stage, the risk/reward ratio of such deals looks pretty good.

What’s in store for us today?

08.00 UK Monthly Three Months GDP Change
11.00 EU Industrial Production in February
14.30 US PPI Producer Price Index for February

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.

For quite some time, investors have disliked silver because of its high volatility and difficulty in predicting prices. Recent data shows that the time has come to take another look at this metal and evaluate the possibility of allocating it a place in an investment portfolio.

Silver

The price of silver was often boring to watch, as it almost always moved with gold. After the COVID-19 epidemic began, this movement changed. Silver began to trade in a wide range between $23 and $28, while gold began a slow decline until now. It is to be assumed that from 2020 onwards silver will not only be used as a commodity but also as an investment instrument.
Why did this start to happen? More than once we have talked about the huge amounts of dollars now being injected into the economy to stimulate it. Inflation is inevitable. Gold has always been the main saver from inflation, and it has risen rapidly in the last couple of years. But investors are now realising that they can’t put their money in just one instrument. One has to diversify risks. Bitcoin is rising because of this, and interesting things are also happening to the silver market.
Global silver ETF stocks have risen by 331 million ounces over the past year and now stand at 1.04 billion ounces, more than the annual application volume.
Another factor pushing up silver prices is a global production recovery. The Silver Institute is forecasting a 10% increase in industrial demand for physical silver in 2021. Electronics and new technologies such as the introduction of 5G networks should be the main drivers for this growth. The solar energy industry is also gaining momentum worldwide. Solar cells use a fair amount of silver, which is indispensable. Furthermore, we should not forget about electric cars, which continue to grow each year, and which also require a sufficient amount of silver for their production.
Many factors indicate that right now silver is expanding its importance as a trading instrument and is becoming a full-fledged investment asset, which, if skillfully used, can bring good profits.

What’s in store for us today?

13.45 ECB interest rate decision
14.30 Initial Jobless Claims in the US
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.

Trends for bitcoin are getting stronger by the day. A price of $50,000 per Bitcoin no longer seems unbelievable. This year, the Bitcoin exchange rate could very likely go to $100k. Let’s try to understand why.

BTC/USD

The next bailout package is coming soon in the US. This infusion of funds will inevitably lead to inflation, so investors are now looking for replication-independent assets, which is Bitcoin. Considering another cryptocurrency boom, it is likely that some of the bailout money will go into this market. Bitcoin is now on everyone’s lips and it is easy enough to buy it. More and more services are making it possible.
Just a few years ago, big investors like Warren Buffett thought Bitcoin was a fraud and a toxic asset. Now, when the price reached $50,000 per BTC, there are no more such statements from skeptics. More and more big companies are starting to invest in Bitcoin. When big money enters the game, the trend unwinds so that the highs are impossible to guess. Aggressively growing markets can reach obscene levels.
The value of Bitcoin has risen six-fold in a year, but even at that value, investors continue to put coins into cold wallets. In the last 12 months, the number of coins on exchanges has fallen by 20%. And as we all know, if supply falls, the price will rise.
As Bitcoin’s acceptance grows, more and more new companies are coming to the markets. Some giants, like JPMorgan, are even having to give up their own stance on Bitcoin in order to maintain profits. Goldman Sachs is resuming Bitcoin on its trading platform, although it had no intention of doing so recently.
So far, the bullish trend in Bitcoin has been very difficult to stop. The injection of massive amounts of liquidity will only push up the demand for decentralised assets. All of these actions together could give such a strong boost to growth that it will be impossible to predict the next high. But the important thing to keep in mind is that as the price of an asset rises explosively, so does the risk of loss.

What’s in store for us today?

14.30 US Core Consumer Price Index for February
16.00 Canada Interest Rate Decision
16.30 US Crude Oil Stocks

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 week turned out to be quite successful for the US dollar. On Friday, after the publication of the US employment reports, the dollar continued its rally and EUR/USD reached its lowest level since last November. It would seem that pumping huge amounts of dollars into the US economy should have the opposite effect.

EUR/USD

Thanks to the opening of restaurants and bars, the US economy is gaining momentum. More than two-thirds of new jobs have come in the catering sector. We can already see how the lifting of restrictions is having an effect on the economic recovery. This trend will continue as more and more Americans are vaccinated with the COVID-19 vaccine.
After Powell’s speech it was clear that the US Federal Reserve was letting bond yields float freely. The main focus for the Fed remains the labour market. Powell stated that the labour market is still a long way from recovering. This can be interpreted to mean that strong labour market reports will not be a signal for monetary policy tightening decisions for some time to come.
Investors will now have to decide how to deal with the USD. If bond yields continue to rise because of weak demand, investors are likely to continue exiting risky assets. If that is the case, the dollar will continue to strengthen.
Due to the slow introduction of the vaccine in Europe it can be seen that the USA is coming out of the lockdown faster and therefore a faster recovery of the US economy than that of the Eurozone can be predicted. ECB meeting is coming up but the bank is not going to make any additional monetary policy decisions in advance. This will put additional pressure on the Euro and it might well push the EUR/USD down to the 200 SMA at 1.18.
While the trend of USD strengthening remains in the investors’ preferences, it is worth remembering that there is another bailout plan being prepared, which will bring huge amount of dollars to the markets. Where that money will go is hard to predict, but it is worth considering that the markets may try to buy back the falling stock market, which will put pressure on the dollar.

What’s in store for us today?

00.50 Japan’s January nonseasonally adjusted balance of payments
08.00 Germany’s Industrial Production in January
11.00 Address by E.Bailey, Governor of the National Bank of England

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.

On Thursday and Friday the most important event for the oil market is the OPEC+ meeting. Participants at this event are due to discuss the current oil market and a possible increase in production quotas in April. The cold winter has supported energy prices quite well. Will oil continue to be worth this much longer?

OIL.WTI

OPEC+ is currently facing two problems. The first is a possible increase in production by 500,000 bpd from April. The second problem concerns Saudi Arabia, which is always eager to make its own decisions. This time they are going to unilaterally increase production by 1 mln bpd.
OPEC+ will have to make serious decisions, as high energy prices in the current situation only harm the economy. This has already been stated by some of the biggest consumers – India and China. Russia and the UAE have also reported strong growth in energy demand and are in favour of increased production.
It has also been considered that OPEC+ might refuse to increase production quotas. In this situation, shale oil producers might become more active and could very quickly get their rigs up and running. Also, we should not forget about the oil in storage. Someone might want to cash in on it.
By all accounts OPEC+ was supposed to start ramping up production, but that’s not what happened. According to preliminary reports at Thursday’s meeting it was decided not to increase oil production quotas in April. It was also announced that Saudi Arabia would start cutting production by 1m bpd from April. This was unexpected, and by Thursday evening the price of oil had jumped more than 4.5% and was trading at $64 a barrel.
In summary, we can safely say that the oil price is unlikely to fall much in the next few weeks, given that the weakening dollar is providing quite good support in the current situation.

What’s in store for us today?

8.00 Manufacturing Orders in Germany for January
09.30 UK Halifax House Price Index for February
14.30 U.S. Unemployment Rate for February
16.00 Canada Business Activity Index for February

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.

04.03.2020 – Special Report. Caution, the Federal Reserve is likely to intervene soon: A historic event has taken place on the repo market. For the first time, the interest rate for overnight lending of ten-year US government bonds has fallen to minus 4 percent. In other words: nobody wants Treasurys, even if they receive money. Presumably the Fed will strike soon – and thus also help the stock market.

Sell-off in US bonds

Complicated mix on the financial market – US government bonds had recently also put pressure on equity trading. Fear of rising inflation led investors to sell US Treasurys on a large scale. Falling bond prices mean rising yields – as a result, inflation expectations pushed up real interest rates, which recently approached the 1.5 to 1.75 percent mark. This makes debt more expensive for young companies and has just weighed on the Nasdaq Composite. And this rising nominal interest rate is also eating away at wage growth rates, causing unrest among the people and eroding purchasing power. And thus slows down the economy.

The repo craze rages

So nobody wants bonds. There is another crazy corollary to this situation: according to repo guru Scott Skyrm of Curvature, the 10-year US Treasury bond just traded for minus 4 per cent in the repo market. That is a record level that the Federal Reserve cannot let go unobserved. In other words, lenders theoretically had to force money on buyers in order to get someone to take the Treasurys. Short-term loans are traded on the repurchase market – but no one is currently buying. Skyrm said that short demand had now outstripped supply. Golman Sachs had also just said that there was zero liquidity on the buy side of Treasurys. The situation resembles the peak of the Covid crisis last March.

ZeroHedge classified the matter this way: “This is important because it means that the imbalance in the bond market is no longer just a fundamental bet by traders expecting inflation: there is also something profoundly wrong with the actual market structure itself so much so that if left unchecked it could lead to catastrophic consequences for the world’s (once upon a time) most liquidity market. “

The Fed has registered the matter

We suspect that it is only a matter of time before the Fed causes a massive short squeeze in the bond market and thus catapults share prices upwards. Fed Vice Chairwoman Lael Brainard, who is being discussed as the new head of the Fed, just said in a virtual speech to the Council on Foreign Relations: “I am paying close attention to market developments. (…) Some of those moves last week, and the speed of the moves, caught my eye.” Bloomberg added that the sharp rise in 10-year yields had fuelled speculation that the Fed would intervene because the higher real interest rate could choke off the economic recovery. Presumably, the Fed will shift bond purchases to longer-dated paper, he said. We suspect: That could mean a shopping spree in the ten-year. And trigger a massive short squeeze, pushing up Treasury prices, lowering real interest rates and fuelling the stock market.

Trading opportunities ahead

So here’s our urgent warning to all CFD traders: the Fed will not sit idly by in the face of the historic imbalance in the repo market and the ongoing sell-off in bonds. Perhaps it will already do so today when Jerome Powell speaks at a virtual event of the “Wall Street Journal”. Perhaps only with a time delay to surprise the market and thus warn speculators for the future. But there should be an intervention by tomorrow at the latest – because it would be irresponsible to let the market go into the weekend with interest rate fears running rampant. If, contrary to expectations, the Fed does not act, the bond market and Wall Street will crash. Fabulous times for traders. So be sure to keep an eye on the news – we’ll stay on the ball for you!

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.