The low volume in US stocks is taking a break. Still far from a proper pullback, investors are adamant about buying any weakness. The delta wave may peak, but the Fed is clearly waiting to see how the economy holds up over the next few months. The Fed’s Williams made some hesitant comments backing the idea that the Fed could not phase out until December at the earliest. Williams believes it may be appropriate to slow the pace of security purchases this year. His growth outlook for 2021 is around 6%, and he expects inflation to slow to around 2% over the next year. He stands next to the pigeons when he thinks there is still a long way to go before maximum employment is achieved. Williams is clearly in the camp as inflation is transitory and has helped push US Treasury yields to their lows.
The Fed’s beige book didn’t tell us anything the market didn’t already know, it merely noted that growth slowed slightly to a moderate pace in early July through August.
Given the good growth outlook for next year and the Fed’s reluctance to hike rates over the next few years, stocks remain well supported. Wall Street has largely priced in tapering but is still not convinced that interest rates will rise anytime soon.
US Jolts Job Openings breaks record
Juli Jolts’ job posting report showed employers are not making much headway in filling vacancies. A record 10.9 million jobs were available in July, far exceeding the 8.7 million unemployed in July. Significant strides in the labor market recovery will not help with the next job report as Hurricane Ida will cause many hiring disruptions and many parents will wait to see how the return to school for unvaccinated children goes. The recovery on the labor market is still intact; it’s just that the next month won’t be nice.
The focus is shifting back to the DC and investors are watching the back and forth on new editions from the Democrats. Senator Manchin has voiced his support for just $ 1 trillion, much less than the $ 3.5 trillion currently being worked out.
The White House is backing a short-term funding draft to avoid a shutdown at the end of the month. The stopgap solution would include $ 6.4 billion in Afghan aid, $ 14 billion in natural disaster relief, and an additional $ 10 billion in relief efforts.
Wall Street is not overlooking anything that is happening in DC as expectations remain high that the infrastructure deal will pass and that the spending bill will be cut to something near $ 2 trillion, which will appease moderate Democrats.
Government bonds / FX
A $ 38 billion auction for 10-year-old banknotes showed pretty impressive demand. The auction gained 1.338%, much less than the 1.352% that were pre-selling. Foreigners were big buyers as they wanted to take advantage of the recent surge in yields. Wall Street still expects we will live in a low interest rate environment for a while, so this is where the bond traders are snapping up the yield. The dollar has been a mess sideways and that will likely continue for a while.
After yesterday’s crash, Bitcoin struggles to shake off regulatory fears as cryptocurrency traders are concerned about expected regulation by the SEC over Coinbase’s interest-bearing product. Many cryptocurrency traders welcomed the banking trend and high annual percentage returns (APY). Bitcoin is still deeply disappointed with the introduction of Bitcoin in El Salvador as legal tender could delay other countries from following suit and opening their doors to cryptos. El Salvador is the great experiment for the rest of Latin America and Africa that other central banks may be reluctant to recognize and regulate cryptocurrencies.
The next big risk event for Bitcoin is the Fed’s paper on central bank digital currencies, which could have an overwhelming impact on stablecoin guidelines. Stablecoins are used to buy Bitcoin, so tight restrictions could indirectly drag Bitcoin down.
The long-term bull thesis of many crypto traders remains unchanged as mainstream adoption is going in the right direction and the demand for protection against excessive monetary and fiscal policy remains high. The $ 45,000 level should hold for Bitcoin, but if it breaks, buyers will likely wait until $ 40,000 before going strong.
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With more than 20 years of trading experience, Ed Moya is a senior market analyst at OANDA providing up-to-date intermarket analysis, coverage of geopolitical events, central bank policies and market reactions to company news. His particular expertise lies in a variety of asset classes, including forex, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokers, research teams, and news departments on Wall Street, including Global Forex Trading, FX Solutions, and Trading Advantage. Most recently, he worked at TradeTheNews.com where he did market research on economic data and company news. Ed is a New York based and regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most prestigious global news outlets, including Reuters, Bloomberg and Associated Press, and he is regularly cited in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.