Biden package challenges markets

Wall Street appears to have put the travails from the liquidation of positions related to Archegos Capital Management quickly behind it, even if some banks’ share prices have not. The unfortunate liquidation of the fund’s holdings is not a systematic risk, although apparently, the SEC and FINRA have called in the banks involved for a “fireside chat.”

President Biden’s Build Back Better package appears to be finally moving to the front page, with the president set to announce details of the package tomorrow, and most importantly, how he intends to pay for it. Although tax increases are forecast, more debt issuance is inevitable, and that saw long-end US yields rise overnight. That pushed the US dollar higher once again, and cyclical rotation was evident in stock markets, with the Dow Jones treading water while the S&P 500 and Nasdaq sank.

Gold also wilted, having shrugged off similar moves in these other asset classes last week, notably a rising US dollar and US yields. Gold in recent times has been like the European Union; it promises a lot, but somehow always disappoints. Just ask the German Constitutional Court and those pesky German professors. It is too soon to say that gold’s attempt to form a long-term bottom is failing, but the danger is definitely rising.

Visa gives thumbs-up to bitcoin

Bitcoin made the headlines overnight, with Visa Inc. announcing it would conduct a trial in accepting crypto payments. Bitcoin duly climbed to 3.25% to 57,300 of fiat US dollars, but I felt the rally was somewhat muted. If this story had hit the wires a month ago, bitcoin would have leapt by 15%, with “institutional experts” swinging from more trapezes than the Cirque Du Soleil proclaiming mainstreaming. I still struggle with governments around the world ultimately losing control of monetary policy, though.

I will not say that bitcoin’s rally is perhaps running short of momentum for fear of the virtual crypto Sons of Anarchy filling my inbox. But it could well be that a rock-solid US dollar may be tempering animal spirits. For directional inspiration, I went to my favourite crypto source, my kitten Twinkle. I roused her from her sleep next to me and placed her behind my laptop screen, tempting her with access to my warm keyboard to flop on. Left equalling bitcoin higher, right equalling bitcoin lower. Twinkle chose the left, meaning the Oracle of Jakarta has spoken, and bitcoin’s rally should continue.

Oil markets sank after the Suez Canal was reopened for business. But Reuters has reported that both Saudi Arabia and Russia are on board with maintaining production cuts at present levels. That was enough to send oil modestly higher on the day, and I expect the admittedly wide ranges to hold ahead of the OEPC+ meeting on Thursday.

The Asian data calendar, like the one overnight, is relatively threadbare today. Japan’s Retail Sales MoM for February outperformed but is frankly old news. The Bank of Japan’s Kuroda states this morning that the global economy is bottoming, as is Japan’s, with no noticeable effects on markets. The pace of data releases globally picks up from tomorrow with South Korea Industrial Production and Retail Sales and official China PMI Asia’s highlights.

Notably, FTSE Russell has announced overnight that China government bonds will be included in their World Government Bond Index from October, with a three-year transition. This should be positive for China markets at the periphery, although the monthly inflows are relatively small. However, it does highlight the increasingly mainstream acceptance of China assets despite the ongoing and constant geopolitical ructions between China and the Western powers.

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