US close – stocks resume record climb on stimulus hopes, dollar drops and bitcoin volatility

US stocks are off to a nice start in December as the economy continues to see manufacturing growth, albeit at a slower pace, a bipartisan effort outlined a USD908 billion stimulus plan, and after President-elect Biden noted any stimulus bill done now will just be the beginning.  Much attention came from the testimony of Fed Chair Powell and Treasury Secretary Mnuchin, which was a united front to deliver more fiscal stimulus.  One of the key sticking points is support for state and local governments.  It is apparent that the need for fiscal support is elevated and that more is coming possibly this month and shortly after Biden takes office.  It seems a deceleration in growth and labor prospects will drive the push for more fiscal stimulus, which should provide underlying for US stocks.

US dollar under pressure, Treasuries soar

The euro surged to the highest level since May 2018 after news that Treasury Secretary Mnuchin will have a phone call with House Speaker Pelosi, possibly a sign that a compromise might happen on stimulus before the holidays. EUR/USD broke through 1.20, a psychologically important level. Europe is faring better with the fight against coronavirus than the US and that success has steadily been the backbone of mounting euro bets.  The next week will be critical for the US in seeing if the Thanksgiving holiday will deliver a surge of new Covid cases, and that uncertainty alone should keep the dollar vulnerable.

Bearish dollar bets have once again become the consensus trade on Wall Street, with many focusing on the euro and emerging market currencies.

Safe-haven demand for Treasuries have left the building.  The 10-year Treasury yield is skyrocketing, up 7.6 points to 0.914%.  Treasury yields look like they bought a one-way ticket to 1% as US data continues to show growth, albeit at a slower pace.

Bitcoin within striking distance of USD20,000

Bitcoin’s rollercoaster ride continues after another failed attempt at the USD20,000 level led to an 8.8% drop.  Today, Bitcoin is not rallying with other risky assets and has triggered some profit-taking for some cryptocurrency traders.  Some are suggesting the wicked reversal was triggered after Gary Cohn, a former chief economic advisor to President Trump, threw some shade on Bitcoin, noting it lacks some ‘basic integrity’.  Cohn has been interested in blockchain technology and a couple of years ago became an advisor for Spring Labs, a blockchain start-up. Cohn’s comments need to be taken with a grain of salt.

Bitcoin’s resilience is strong and institutional buyers still seem adamant about buying every major dip.  Bitcoin volatility will remain high and for now it seems that the USD20,000 level will remain a major hurdle.

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