OANDA – Stocks drop, Yields rise, Lira pares losses, Oil and gold down on strong dollar, Bitcoin surges

By Edward Moya, Senior Market Analyst, New York, OANDA, 

US stocks are dropping on lackluster volume, as investors anticipate the economy is about to run even hotter after President Biden lays out his long-term economic plan which will will have to come with tax increases.  Massive government spending is sending Treasury yields higher and that is triggering a much stronger US dollar.  This is a shortened trading week given the Easter holiday and many traders are solely focusing on tomorrow’s speech from President Biden on infrastructure initiatives in Pittsburgh and Friday’s nonfarm payroll report.

The Archegos Capital aftermath is seeing a focus primarily on prime brokerages.  Wells Fargo shares popped after they issued a statement that no losses came from closing out our Archegos exposure.

The fallout from Archegos Capital margin call appears to be contained but the regulatory scrutiny will not go away anytime soon.  Every prime brokerage is looking at their books and could start pressuring family offices or hedge funds to bring down the leverage they are using.  Calls for greater transparency over how big money managers are spreading their trades across some prime brokerages will grow.  Lawmakers will want to see assurances that banks will not take advantage of knowledge of upcoming offerings or coordinate with other brokerages.  Calls for taking out some of the leverage out of the system will grow, but should not derail Wall Streets overall optimism for US equities.

Turkey

Emerging market currency traders are seeing strong moves with the Turkish Lira.  The Turkish lira has quickly become the favorite short trade in FX.  Yesterday, the lira plummeted after President Erdogan fired central bank deputy governor Cetinkaya.  This is the second firing in two weeks but sends a reminder that the CBRT has no independence.

The lira pared losses after new central bank Governor Kavcioglu stated that Turkey will continue to keep its benchmark one-week repo rate above consumer inflation.

Calls for record lows with the Turkish lira could grow with the 9-level likely to become very attractive in the short-term.

Oil

A trifecta of reasons sent crude prices lower: The Suez Canal is open again and the backlog could be cleared within a week.  The US dollar surges on recovery bets as Americans prepare for a normal summer and for the economy to run even hotter if Biden is able to deliver his infrastructure spending plan.  The main event for the energy market is the upcoming OPEC+ meeting, and a panel of OPEC+ technical experts have cut the crude demand estimates for 2021.  It seems clear that Saudi Arabia is posturing for output to remain steady or possibly a tentative reduction in output.

WTI crude trading around the $60 level seems right, so energy traders should not be surprised with a continued consolidation leading up to the OPEC+ meeting.

Gold

Gold demand appears to have disappeared as Wall Street becomes fixated on President Biden’s big infrastructure proposal, which will be relentless support for an already quickening economic recovery.  Gold is about to fall into bear market territory as Treasury yields surge, driving a much stronger US dollar.  The catalyst needed to trigger a buying spree for gold is inflation.  The US economy is about to run too hot and sustained inflation will take time to prove.  Gold’s bullish outlook for the second half of the year should start to attract investors, but caution remains as concerns grow that the dollar could have one last major thrust.

Bitcoin

Another day, another massive cryptocurrency endorsement from Wall Street.  Bitcoin is rising again after PayPal launched “Checkout with Crypto”, a new feature which significantly expands the utility of cryptocurrency.  So you are not necessarily holding Bitcoin with PayPal, but regardless this announcement is further proof of mainstream acceptance.  Bitcoin has tentative resistance at the $60,000 level, but momentum from yesterday’s Visa news should be enough to keep the bullish trend going strong.