US Close – Stocks party continues, Oil breaks out, Gold avoids death, Musk Street’s bet on Bitcoin, Dollar slips on Yellen

US stocks are feeling super as Wall Street remains confident Biden’s stimulus plan will be big and is coming shortly and as COVID cases continue to trend lower.  Now that the House and Senate have passed legislation to get Biden’s stimulus package pushed through, Democrats just need to get the moderate-to-conservative Democrats onboard.  Financial markets are forward looking, and it looks like the US and Europe have COVID cases heading in the right direction.  Reflation bets are running wild and that could be enough to keep this stock market party going.

Oil

Crude prices are not waiting for the return to pre-pandemic life.  Now that Europe appears to be over the worst of this COVID wave, energy traders are becoming very optimistic that the demand outlook is going to be very strong by the end of the second quarter.  Germany and Spain have COVID cases falling and France may finally have just past their peak in cases and hospitalizations. 

Oil’s fundamentals are looking strong again on both supply and demand side.  Despite demand being down about 5 million barrels year-over-year, optimism is high that vaccine rollouts will have key parts of the global economy return to normal.  China is leading the crude demand recovery as imports surged to a six-month high last week.  Cold weather is supporting demand for heating fuels, while air travel remains sluggish.  The supply side of the oil equation is not at risk as the Saudis have taken that risk off the table for the next couple of months and as US shale producers’ output is almost 20% less than last year.    

Gold

Gold almost had its back broken, but the reflation trade just saved it.  Gold is rallying from a two-month low as Biden’s massive $1.9 trillion plan is about to become a reality.  The economic recovery is weak, and prospects are growing that more will be done once we get past this first $1.9 trillion plan.  Inflation is coming as the 10-year breakeven rate jumped to a 10-year high.  The reflation trade is happening a lot faster than-expected and that should keep inflation expectations rising. 

Gold is not out of the woods just yet and needs to capture the $1,850 level before the end of the week, otherwise a death-cross formation could trigger a significant wave of selling pressure. 

Bitcoin

The institutional demand story for cryptocurrencies just got justified.  Tesla’s SEC filing was the catalyst that disrupted the crypto-haters base case that there really isn’t institutional interest behind this move in cryptos.  Bitcoin surged above $40,000 after Tesla announced they invested $1.5 billion in bitcoin and that they will begin accepting it as a form of payment.  Elon Musk has been one the biggest advocates for cryptocurrencies and this $1.5 billion bet is a sign that Musk Street is buying Bitcoin for the long-term. 

Retail traders also rejoiced in Musk’s commitment to Bitcoin as it reinforces the belief that it is a long-term investment.  The retail trader viewed Tesla’s $1.5 billion investment as a sign that this trade won’t blow up like GameStop did.  All eyes are for Bitcoin to hit $50,000 at some point in the near future, and it could go much further if the dollar resumes its slide.  Bitcoin volatility remains elevated, but it looks like we are at the beginning of the breakout from a consolidation pattern.  If crypto-mania continues, $60,000 could become a reality before the quarter ends. 

FX

The dollar is on the ropes as Treasury Secretary Yellen downbeat assessment on the labor market suggest much more stimulus is on the way even once we get Biden’s trillion dollar stimulus package pushed through Congress. The dollar still needs for more bearish bets to get unwound before the selling pressure can resume.

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