US Close: Tax fears ebb, Another solid round of US data, Oil rebounds, Gold drops, Bitcoin pares plunge

The S&P 500 index recovered all of yesterday’s loss that stemmed from President Biden’s tax proposal headlines as traders mostly view the tax hit as temporary for stocks.  Supporting the rebound with equities was a record increase in business output.  The US manufacturing PMI rose to 60.6, the highest in the series going back to May 2007, while Services PMI rose to 63.1, a record high and easily topping the 61.5 estimate.   

Treasuries are bid despite continued robust data.  Markets now are believing that we don’t have enough information to assess how hot inflation will be next year.  The Fed will tolerate inflation for the rest of the year and that should be enough to keep the rise in Treasury yields steady.

EUR

The euro’s time to shine is here.  The first quarter was all about US growth exceptionalism and a stronger dollar, but now it is Europe’s turn.  The second quarter will be about Europe’s improved vaccine rollout, better-than-expected economic data, and some fiscal support that should provide a strong backdrop for a stronger euro.  Europe’s got a lot more recovery potential and that should help drive the euro higher. 

USD

The dollar is finishing on a down note despite solid economic data and another strong earnings week.  It is all about the Fed and Treasury yields and right now it seems the improving global economic outlook could support a weaker dollar despite some countries still struggling to contain COVID-19. 

Oil

Crude prices rebounded following a barrage of solid economic data globally.  Oil will still finish down on the week, unable to shrug off weakness that stemmed from coronavirus concerns across from Asia. 

Gold

Gold prices couldn’t hang to earlier gain as tax fears eased and after a strong round of US PMI and housing data.  Dampening demand for safe-havens has capped the rally in gold.  Treasury yields pared earlier losses and that will likely be the key for the next move in gold.  The 10-year Treasury yield is still poised to finish lower on the week but appears to have found a tentative floor at the 1.53% level.  Gold prices will likely consolidate leading up to the Fed between $1,760 and $1,800. 

Bitcoin

A key test is here for Bitcoin bulls.  The failure to recapture the $60,000 level has sent this Bitcoin into bear market territory, something crypto traders are very used to.  The key levels are $52,000 and $40,000 for Bitcoin.  The crypto world is still confident with Bitcoin and will likely be buying on every major dip. 

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