2021 has offered a plethora of market events with only 6 weeks into the year. At the onset we witnessed an inflow of capital into risk assets, signaling continuous bullish sentiment that had been prevailing for the most of 2020. That sentiment has not subsided – last week we saw a number of all-time-highs, or swing highs, once again in across of asset classes.
Bitcoin has risen to levels that seemed optimistic-to say the least- a mere year ago. The price closed at 48,680.69 on Friday, a new all-time-high, up 68% this year. Last week’s momentum was supported by Tesla’s announcement of buying U$.1.5 billion worth of Bitcoin, sparking discussions whether other corporates may choose the same. Tesla’s CEO Elon Musk has expressed his interest in crypto currencies a few times but such allocation of capital by one of S&P 500 companies can’t be ignored. Musk has also commented that Tesla is looking to accept Bitcoin as a payment method in the future. Practicalities of such step, especially price volatility and accounting standards, are to be discussed further. Also, the impact on Tesla’s balance sheet is guaranteed to offer a debate, given that cash and equivalents ought to be marked to market, causing huge swings in the value of Tesla’s assets. Another catalyst for Bitcoin and crypto in general is Bank of New York Mellon, the oldest financial institution in the U.S., announcing that their asset management division will hold crypto on the behalf of the clients. This means that large financial institutions are finally taking the step to custodise a digital asset that has been a subject of discussions from both regulatory and accounting perspective.
Investors have been positioned for economic recovery and reflation since late last year when the announcements about vaccines started coming through. Post Pfizer Monday, on 9 November, a number of commodities have taken a decisive step higher, oil leading the way. On top of oil, we have seen copper futures moving into new highs of U$ 3.827 – levels last seen nearly a decade ago in 2012. One of the obvious beneficiaries of boom in commodities and reflation is the Aussie dollar. AUDJPY, after crashing in March to a decade-low of 62.40, had recovered 2019 levels of 76.37 by 5 June last year. Price has since been climbing higher and is now near 81.94, notwithstanding the easing efforts by Royal Bank of Australia. RBA has cut interest rates to record low levels of 0.1% but this has not stopped AUDJPY testing levels last seen in 2018 December. Weekly chart reveals that resistance is near 83.0 but the bullish trend is expected to continue, supported by fundamentals and technicals. Australian economy has recovered well with unemployment rate at 5.3%, while inflation was 0.75% in 2020 – a rare exception among developed countries that struggle with anemic inflation.
Equity markets reached new all-time-highs last week with S&P 500 gaining 1.23%, Nasdaq-100 +1.50% and Russell 2000 up 2.51%. US dollar, measured by DXY, was down 0.09%. Gold lost 0.31% while oil futures rose 1.60%.
Have a great trading week ahead!