Global shares head for worst week in a month, while the dollar trades near 2-month highs as the Fed’s shift spooks investors

Wall Street decorated with American flags.
A more-hawkish stance by the Federal Reserve has forced equity indexes off recent record highs and boosted the dollar.

  • Global shares eased while the dollar rose as investors mulled over a more hawkish US rate outlook.
  • Gold headed for its biggest slide since February, pressured by rising bond yields and a firm dollar.
  • The dollar traded near its highest in two months, buoyed by a rise in Treasury yields.
  • See more stories on Insider’s business page.

Global shares on Friday headed for their steepest weekly drop in a month, while the dollar neared two-month highs, as investors began to prepare for an end to the Federal Reserve’s multitrillion-dollar economic-support program.

The Fed met this week to discuss monetary policy and, in light of the resilience of the recovery in the US economy and the pickup in consumer inflation, indicated it might raise interest rates by the end of 2023, sooner than it originally expected.

This more-hawkish stance has forced equity indexes off recent record highs, boosted the dollar, and forced government bond yields up, as chances grow for the central bank to taper the vast asset-purchase program it put in place last year to keep borrowing rates low and protect the economy.

Futures on the S&P 500 and the Dow Jones Industrial Average were flat Friday, while those on the Nasdaq 100 rose 0.2%, suggesting tech stocks might get a lift when trading starts later in the day.

The MSCI All-World index of global shares was down 0.4% on the day, heading for a 0.64% decline this week, the largest in percentage terms in a month.

“Investors have been digesting the latest statements from the US central bank, which surprised markets with a far more hawkish stance than expected,” the AXI strategist Milan Cutkovic said.

“While this hasn’t led to a reversal in stock markets, it could limit further gains in the near-term as taper talks intensify,” he said.

In Europe, the STOXX 600 index was last down 0.1%, echoing the modest weakness across the Asian market, where the Shanghai Composite closed flat and Tokyo’s Nikkei lost 0.2%.

The dollar hovered near its highest in about two months, buoyed by an influx of capital from investors who have ditched assets that tend not to perform well when US rates rise, such as emerging-market currencies and some commodities.

“The world’s reserve currency is heading for its best week in nearly nine months after the surprise change in tone from the Federal Reserve on Wednesday continues to rattle markets and fundamental positioning,” Lukman Otunuga at FXTM said.

“A market accustomed to liquidity on tap from a ‘patient’ Fed has had to face the reality that a tightening is coming far sooner than it previously thought,” he said.

Yields on the five-year US Treasury note, which move inversely to prices, were down 2 basis points on the day, at about 0.858%.

In cryptocurrencies, bitcoin was down 3.7% at about $37,840, while ether was down 4% at about $2,340, in line with the sell-off across other risk assets.

The gold price was heading for its largest weekly loss since early February, on track for a drop of 4%, thanks in part to the strength of the dollar, which makes bullion less appealing for non-US investors to hold.

“The most important driving force behind the price slide is the massive appreciation of the US dollar, which has gained more than 2 cents since the Fed’s meeting on Wednesday,” the Commerzbank analyst Carsten Fritsch wrote in a research note.

Gold was last up about 1% at $1,792 an ounce, having recovered some of Thursday’s 3% decline, which was the biggest one-day drop since January.

Other commodities also declined broadly, having been swept lower by the same dollar-related selling as gold. Lumber was set for a weekly drop of 15%, while copper was on track for a decline of 7.5% and palladium, which is used in autocatalysts for gasoline-powered vehicles, was heading for a fall of 7% on the week.

Read the original article on Business Insider

Turkish lira crashes as much as 14% after the firing of the head of the central bank sparks market turmoil

GettyImages 1014049930
A foreign exchange office in Istanbul, Turkey.

  • Turkish President Recep Tayyip Erdogan fired the head of the central bank after he raised interest rates last week.

  • The lira fell by as much as 14% against the dollar as foreign investors fled Turkish assets
  • The government says it will continue to follow a free-market and liberal foreign exchange regime.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The Turkish lira fell as much as 14% on Monday, after President Recep Tayyip Erdogan sacked the head of the central bank, Naci Agbal. Investors fled Turkish assets after Agbal’s departure, whose appointment had increased confidence and trust in the country’s monetary and macroeconomic policies.

Since Agbal’s appointment in November 2020, the lira had regained some strength and stability, as domestic and foreign investors responded well to his more traditional macroeconomic policies. Previously, Turkey’s unconventional approach to monetary policy had made many investors cautious and the lira suffered as a result.

Agbal raised interest rates to 19% from 17% on Thursday. The rate hike boosted the currency, but went against Erdogan’s belief that higher interest rates raise inflation. Agbal’s replacement, Sahap Kavioglu, shares this opinion.

“Mr Agbal’s replacement, Sahap Kavcioglu, is a little-known business school professor who shares President Erdogan’s economics theories and is, unsurprisingly, associated with the ruling party. Turkey will be an interesting example of what EM can expect if inflation fears rise markedly, with markets nervous about inflation in developed countries and punishing asset classes accordingly,” Jeffrey Halley, senior market analyst at OANDA, said on Monday.

Turkish finance minister Lütfi Elvan has however stated the country will continue to follow a policy of free markets and a liberal foreign-exchange regime. A statement by Kavioglu also said the Turkish central bank “will continue to use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation”.

The falling lira dragged on the benchmark Borsa Istanbul 100 index, which tumbled by as much as 9% on Monday, as investors fled the domestic market.

The heightened nervousness of fixed income investors was also reflected in the stark price fall of the benchmark Turkish 10-year bond. Its yield rose by as much as 300 basis points to around 16%, on Monday, its highest since August 2019. Yields move inversely to prices.

Growing concerns over economic and currency instability following Agbal’s dismissal, especially relating to shifts in interest rates and inflation, have raised the risk associated with Turkish assets and led investors to pull out of Turkish markets across the board on Monday.

The long-term strength of the Turkish economy and the lira are now in jeopardy, Rabobank senior emerging-market strategist Piotr Matys said.

“Essentially, the risk that the CBRT could make the same policy mistake as in 2019/2020 is high. To reiterate the point we have made on numerous previous occasions, Turkey cannot afford to have negative real interest rates when inflation is substantially above the official 5% target,” Matys said.

Read the original article on Business Insider

What you need to know about markets this week: Biden’s spending plans, bitcoin’s blues and an unloved dollar vye with the first Fed meeting and a look at US GDP

Twitter account of the President of the USA Joe Biden is seen displayed on a phone screen
President Biden’s Twitter page. He wasted no time in revealing his spending plans.

  • Joe Biden has been sworn in as the 46th president and wasted no time in unveiling his spending plans.
  • Stocks hit record highs thanks to the prospect of $1.9 trillion in stimulus, but bitcoin has tumbled.
  • Investors will get a first look at 4th quarter US GDP and the Federal Reserve meets for the first time in 2021.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Here are the big themes we’re looking at in the coming week, plus a chart of Big Tech performance around the world.

Joe Biden takes office with a $1.9-trillion bang

With Wednesday’s swearing-in, Biden becomes the 46th president of the United States and has not delayed kicking off his agenda. His proposed $1.9 trillion stimulus package was enough to coax more all-time highs from the global equity markets, with records in the S&P 500, the MSCI Asia ex-Japan index and Europe’s STOXX 600 close to where it was when the pandemic hit last year, despite an alarming rise in cases of COVID-19 and new lockdowns. 

Janet Yellen, Biden’s pick for treasury secretary, is urging the incoming government to spend big and worry about all the debt that will inevitably create later. 

How much the final package is, how those proceeds will be distributed, and what direct impact that will have on growth all remain to be seen. It’s enough, however, for the stock market to be looking past inconvenient economic truths like nearly one million Americans still filing for unemployment benefits a week. A number of other indicators have shown there is resilience to the recovery, with housing starts hitting 14-year highs and manufacturing activity in the mid-Atlantic region picking up to three-month highs.

How did the US economy finish 2020? 

This coming week, the markets will get the first look at US economic growth in the turbulent fourth quarter of 2020. After having contracted by a record 31% in the second quarter, when coronavirus lockdowns were at their harshest, the economy has since largely bounced back. At the last count, it was still 3.5% smaller than it was before the pandemic struck. The forecast is for growth of 4.4%.

The data won’t reflect the impact of the $892 billion aid package that was agreed in late December after months of torturous stand-off in Washington DC. But the prospect of Biden’s $1.9 trillion bazooka has given Wall Street’s big banks cause for optimism. Goldman Sachs raised its forecast for 2021 growth to 6.6% from 6.4% previously, while JPMorgan’s chief global strategist David Kelly believes nominal GDP could expand by 11.4% year-on-year by the end of December.

“Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down,” Kelly said.

Bitcoin gets the blues

It was a bad week for bitcoin bulls last week. The price fell by 12%, marking its biggest one-week fall since late August. It’s still up nearly 270% in the last 12 months, so it’s not all doom and gloom. But the chorus of voices of those calling for greater scrutiny of cryptocurrencies generally is growing. This past week, Yellen said bitcoin and its ilk were “mainly” used in illegal financing and should be “curtailed.” 

“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing,” she said.

Bitcoin is the most crowded trade at the moment, according to a recent survey of asset managers by Bank of America, and it feels like the most likely direction for the price is lower in the coming week.

“I expect the need to see a further pullback before we see significant bullish momentum build, which would then be a good time for new buyers to enter the market and push prices higher again,” DailyFX analyst Daniela Sabin Hathorn said.

Ditch the dollar and buy everything (and anything)

With another almost $2 trillion in stimulus coming that will boost growth and help keep borrowing rates low, the dollar can’t cut a break. Money managers are sitting on top of their biggest short position in almost a decade and even with the back-up in 10-year Treasury yields above 1.1%, risk appetite and Biden-based euphoria are running high and investors are back to the “buy everything” trade, largely at the dollar’s expense.

Junk bond yields have hit record lows, a basket of unprofitable tech companies has gone parabolic and the sovereign debt of Italy – where the government has just narrowly avoided total meltdown – is more expensive than that of the US. The dollar index is around its highest in six weeks, but just two weeks ago, it was at its lowest since early 2018 and the bears are firmly in control right now.

Can the Fed taper the tantrum?

With the prospect of swifter economic recovery, comes a rise in Treasury yields that for many is reminiscent of 2013’s “Taper Tantrum” – the sharp spike higher in yields that ensued after the Fed indicated it would start to wind down its asset-purchasing program that started with the great financial crisis of 2008/2009.

The Fed’s roster of officials are in pre-meeting blackout until the first monetary policy meeting of the year takes place on Wednesday, followed by a press conference hosted by chair Jerome Powell. But a host of central bankers, including Fed board members Lael Brainard and Richard Clarida, have signaled the Fed isn’t in any rush to wind down its current program, under which it buys $120 billion a month in Treasuries and mortgage-backed securities. 

“Market anticipation of Fed tapering picked up sharply in early 2021, but we think a reduced pace of asset purchases could still be a year away, depending on the evolution of US growth and inflation. This likely means no taper announcement before 2H at the earliest,” Bank of America rate strategists Ben Randol and Ralph Axel Bofa said in a note last week.

Chart of the Week – There’s more to Big Tech than FAANGs

Big Tech is all the rage. The Apples, Amazons, Teslas, and Microsofts are among the best-performing stocks, not just of 2020, but of the past few years. However, valuations are high and the FAANGs aren’t the only way for investors to sink their teeth into this sector. Asia’s tech giants perform just as strongly and, with valuations that are almost half those of their New York-listed counterparts, are far less pricey.

Big Tech index performance since January 2018 rebased to 0
Big Tech index performance since January 2018 rebased to 0

Next week’s events:

Earnings

January 26 Microsoft, J&J, Visa, LVMH, NextEra, Starbucks, 3M

January 27 Apple, Tesla, Facebook, Boeing

January 28 McDonald’s

January 29 Caterpillar

 

Economic data

January 26 UK employment

January 27 Federal Reserve rate decision and press conference

January 28 Euro zone consumer confidence; US GDP – Q4 advanced

January 29 US core PCE

Read the original article on Business Insider

What you need to know on the markets this week: Biden’s spending plans, bitcoin’s blues and an unloved dollar vye with the first Fed meeting and a look at US GDP

Twitter account of the President of the USA Joe Biden is seen displayed on a phone screen
President Biden’s Twitter page. He wasted no time in revealing his spending plans.

  • Joe Biden has been sworn in as the 46th president and wasted no time in unveiling his spending plans.
  • Stocks hit record highs thanks to the prospect of $1.9 trillion in stimulus, but bitcoin has tumbled.
  • Investors will get a first look at 4th quarter US GDP and the Federal Reserve meets for the first time in 2021.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Here are the big themes we’re looking at in the coming week, plus a chart of Big Tech performance around the world.

Joe Biden takes office with a $1.9-trillion bang

With Wednesday’s swearing-in, Biden becomes the 46th president of the United States and has not delayed kicking off his agenda. His proposed $1.9 trillion stimulus package was enough to coax more all-time highs from the global equity markets, with records in the S&P 500, the MSCI Asia ex-Japan index and Europe’s STOXX 600 close to where it was when the pandemic hit last year, despite an alarming rise in cases of COVID-19 and new lockdowns. 

Janet Yellen, Biden’s pick for treasury secretary, is urging the incoming government to spend big and worry about all the debt that will inevitably create later. 

How much the final package is, how those proceeds will be distributed, and what direct impact that will have on growth all remain to be seen. It’s enough, however, for the stock market to be looking past inconvenient economic truths like nearly one million Americans still filing for unemployment benefits a week. A number of other indicators have shown there is resilience to the recovery, with housing starts hitting 14-year highs and manufacturing activity in the mid-Atlantic region picking up to three-month highs.

How did the US economy finish 2020? 

This coming week, the markets will get the first look at US economic growth in the turbulent fourth quarter of 2020. After having contracted by a record 31% in the second quarter, when coronavirus lockdowns were at their harshest, the economy has since largely bounced back. At the last count, it was still 3.5% smaller than it was before the pandemic struck. The forecast is for growth of 4.4%.

The data won’t reflect the impact of the $892 billion aid package that was agreed in late December after months of torturous stand-off in Washington DC. But the prospect of Biden’s $1.9 trillion bazooka has given Wall Street’s big banks cause for optimism. Goldman Sachs raised its forecast for 2021 growth to 6.6% from 6.4% previously, while JPMorgan’s chief global strategist David Kelly believes nominal GDP could expand by 11.4% year-on-year by the end of December.

“Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down,” Kelly said.

Bitcoin gets the blues

It was a bad week for bitcoin bulls last week. The price fell by 12%, marking its biggest one-week fall since late August. It’s still up nearly 270% in the last 12 months, so it’s not all doom and gloom. But the chorus of voices of those calling for greater scrutiny of cryptocurrencies generally is growing. This past week, Yellen said bitcoin and its ilk were “mainly” used in illegal financing and should be “curtailed.” 

“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing,” she said.

Bitcoin is the most crowded trade at the moment, according to a recent survey of asset managers by Bank of America, and it feels like the most likely direction for the price is lower in the coming week.

“I expect the need to see a further pullback before we see significant bullish momentum build, which would then be a good time for new buyers to enter the market and push prices higher again,” DailyFX analyst Daniela Sabin Hathorn said.

Ditch the dollar and buy everything (and anything)

With another almost $2 trillion in stimulus coming that will boost growth and help keep borrowing rates low, the dollar can’t cut a break. Money managers are sitting on top of their biggest short position in almost a decade and even with the back-up in 10-year Treasury yields above 1.1%, risk appetite and Biden-based euphoria are running high and investors are back to the “buy everything” trade, largely at the dollar’s expense.

Junk bond yields have hit record lows, a basket of unprofitable tech companies has gone parabolic and the sovereign debt of Italy – where the government has just narrowly avoided total meltdown – is more expensive than that of the US. The dollar index is around its highest in six weeks, but just two weeks ago, it was at its lowest since early 2018 and the bears are firmly in control right now.

Can the Fed taper the tantrum?

With the prospect of swifter economic recovery, comes a rise in Treasury yields that for many is reminiscent of 2013’s “Taper Tantrum” – the sharp spike higher in yields that ensued after the Fed indicated it would start to wind down its asset-purchasing program that started with the great financial crisis of 2008/2009.

The Fed’s roster of officials are in pre-meeting blackout until the first monetary policy meeting of the year takes place on Wednesday, followed by a press conference hosted by chair Jerome Powell. But a host of central bankers, including Fed board members Lael Brainard and Richard Clarida, have signaled the Fed isn’t in any rush to wind down its current program, under which it buys $120 billion a month in Treasuries and mortgage-backed securities. 

“Market anticipation of Fed tapering picked up sharply in early 2021, but we think a reduced pace of asset purchases could still be a year away, depending on the evolution of US growth and inflation. This likely means no taper announcement before 2H at the earliest,” Bank of America rate strategists Ben Randol and Ralph Axel Bofa said in a note last week.

Chart of the Week – There’s more to Big Tech than FAANGs

Big Tech is all the rage. The Apples, Amazons, Teslas, and Microsofts are among the best-performing stocks, not just of 2020, but of the past few years. However, valuations are high and the FAANGs aren’t the only way for investors to sink their teeth into this sector. Asia’s tech giants perform just as strongly and, with valuations that are almost half those of their New York-listed counterparts, are far less pricey.

Big Tech index performance since January 2018 rebased to 0
Big Tech index performance since January 2018 rebased to 0

Next week’s events:

Earnings

January 26 Microsoft, J&J, Visa, LVMH, NextEra, Starbucks, 3M

January 27 Apple, Tesla, Facebook, Boeing

January 28 McDonald’s

January 29 Caterpillar

 

Economic data

January 26 UK employment

January 27 Federal Reserve rate decision and press conference

January 28 Euro zone consumer confidence; US GDP – Q4 advanced

January 29 US core PCE

Read the original article on Business Insider

Bitcoin owner whose story went viral after he lost his wallet password says he has ‘made peace’ with potential $220 million loss

Bitcoin
Bitcoin slid back below $35,000 on Friday.

German-born programmer Stefan Thomas made headlines this week after a lost password rendered his bitcoin stash worth $220 million inaccessible. 

As Insider earlier reported, the secure hard drive, on which 7,002 bitcoins were stored, was an IronKey device. It gives owners 10 chances to guess their password before encrypting the contents. Thomas only had two attempts left to guess correctly before this situation occurred. 

The New York Times initially reported Thomas’ plight and quoted him as saying:  “I would just lay in bed and think about it: Then I would go to the computer with some new strategy, and it wouldn’t work, and I would be desperate again.”

A potential loss of that magnitude makes “you sort of question your own self-worth,” he added.  On Saturday, the stash was worth about $220 million, but as bitcoin prices surged this year, it had been valued above $240 million.

Read more: Bitcoin slides back below $35,000 in volatile trading week 

After his story went viral, he gave another interview to KGO-TV, telling the station “time heals all wounds” and that he had made peace with his potential loss.

He added: “It was actually a really big milestone in my life where, like, I sort of realized how I was going to define my self-worth going forward. It wasn’t going to be about how much money I have in my bank account.”

Thomas, a programmer who now lives in San Francisco, is one of several bitcoin owners who have been locked out of their wallets. This has left a large amount of Bitcoins collectively worth $140 million unable to be retrieved.

In another case, a Welsh man says he says he threw away a hard drive loaded with 7,500 bitcoin in 2013. He is offering his council $70 million to dig it up from the city dump. 

Bitcoin recently surged back above $40,000, despite European Central Bank boss Christine Lagarde calls for more regulation the day before. On Friday, it slid below $35,000 at the end of a week of volatile trading.

Read the original article on Business Insider