Big week full of risks and underlying optimism, Treasury yields edge higher, dollar mixed, bitcoin rebounds

US stocks are mostly positive ahead of a busy week that is filled with several risk events that for the large part are most expected to be positive for risk appetite.  The FOMC policy decision should be boring as policymakers are widely expected to keep policy steady while committing to no changes over interest rates or asset purchases.  The economic recovery is accelerating due to tremendous success with vaccine rollouts and on optimism that the economy will be fully reopened in June.  This week’s first quarter GDP readings will be strong and even if they miss expectations, everyone is pricing in record high growth for the second quarter.  The world’s largest economy is expected to have grown by 6.5% in the first quarter, but traders should not be surprised if it is a lot closer to 7.0%.  Incremental updates on the easing of restrictions in the US should continue to drive the cyclical rotation.

Wall Street is largely pricing in a boring Fed meeting, strong beats with big-tech earnings, and a long-drawn-out battle over President Biden’s tax plan.  The Russell 2000 Index is outperforming the other major indexes on infrastructure optimism and as higher taxes will likely punish FAANG stocks.

Treasuries/FX

The bond market was under pressure after a survey showed economists are becoming confident the Fed would start to taper bond purchases in the fourth quarter.  A successful 5-year auction saw Treasury yields hang onto their modest gains.

The dollar was mixed on the day, with commodity currencies outperforming.  A commodity super cycle and optimism the emerging markets will get their hands on COVID vaccines is driving emerging market currencies higher.

Bitcoin

Turkish exchange contagion fears and momentum selling with bitcoin appears to be over.  After falling towards the USD47,000 level, institutional activity swooped in to buy the dip.  After warning bitcoin could see a major correction after failing to recapture the USD60,000 level, JPMorgan reportedly will offer an actively managed bitcoin fund to its wealth division.

The news for bitcoin has been mostly positive this week.  Fresh endorsements from presumptive number 1 pick in the NFL draft, Trevor Lawrence signed an endorsement deal with a cryptocurrency investment app Blockfolio and took his signing bonus all in crypto.  Barstool founder, Dave Portnoy also is back in cryptocurrencies, with a purchase of one bitcoin.  If bitcoin continues to stay in the news and more people express interest in cryptos, retail demand should remain healthy.  Institutional flows still seem firmly committed with their longer-term bets.

Bitcoin’s long-term momentum looks fairly robust and price action should start to show a consolidation in the mid-USD 50,000s.

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