Stocks rebound a little, dollar dominance, bitcoin consolidates

Despite all the risks to financial markets, it is hard to be bearish on US stocks.  The bearish catalysts range from Evergrande, power shortages, supply chain issues remain, growing margin concerns for the next couple rounds of earnings seasons, and the government’s inability to end the showdown over the debt ceiling drama until the very last possible moment  (this might not age well as House Speaker Pelosi plans to vote on debt limit today, which might imply she has the votes).  To the surprise of no one, lawmakers can’t agree over funding, budget, and the debt limit.  This will go down to the wire as both sides will need to play their hands and have the country come close to the brink of default, before something gets done.

It looks like investors just want to fast forward past the debt ceiling drama and focus on the global economic recovery that should unfold since delta variant risks are easing and as worldwide vaccinations continue to improve.  The global reopening trade was delayed due to delta, but that should firmly be the theme as supply chain issues improve.

US yields lift dollar

Yield curve steepening is taking a break today, but it probably isn’t done just yet.  The 10-year Treasury yield can probably make a run towards 1.60%, but that might be where bond market selloff shows signs of exhaustion.

The dollar seems like it can still rally from here given the Evergrande risk, inflationary pressures, and as some currency traders seek protection against a weaker euro.  If commodity prices come under pressure and that risk is growing as China and the EU become worried over a full-blown energy crisis, the dollar could see another major move higher.

Crypto
Risk appetite is crawling back and that was welcomed news for cryptocurrencies. The key level of USD 2800 held for Ethereum and the psychological USD 40,000 level for Bitcoin.  The next couple of months will be a messy period for cryptocurrencies as regulatory lines are drawn, which should support a continued consolidation here.

News that El Salvador is getting closer to power bitcoin mining with volcanic energy is incrementally positive as it reminds the crypto space that progress towards clean energy continues.  Today’s risk-on feeling on Wall Street is not helping push bitcoin higher, which still suggests that big money is on the sidelines waiting to see if the recent lows hold.

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