Nasdaq led gains in New York Friday, followed by S&P500 and Dow Jones

Nasdaq led gains in New York Friday, followed by S&P500 & Dow Jones

The Chinese GDP grew at a record pace in the first quarter, +18.3% from 6.5% printed a quarter earlier. The Chinese growth figure could be seen as a rebound ball; after the pandemic-hit economy recovers quickly toward normal activity levels.

And there is nothing more promising than seeing China in good health for the average investor. No wonder we’ve seen oil extending gains above the 50-day moving average.

New round of stimulus checks

In the US, the retail sales jumped nearly 10% in March thanks to the new round of stimulus checks from government; and the demand for unemployment benefits fell to the lowest in more than a year.

The industrial production recovered less than analysts expected; but the Philly Fed Manufacturing index surprised with a print above 50 hinting at expansion. The Empire State Manufacturing index beat analysts’ estimates.

What investors couldn’t understand, though, was the market reaction to the very strong economic data. The major US indices renewed record and the US 10-year yields eased. This is the exact opposite of what one would have expected.

As the significantly improved economic conditions in the US should have spurred the expectations of an earlier tightening in the Federal Reserve (Fed) policy, and should have had the opposite effect, at least on the yields front.

Was it because the abnormal rise in retail sales was the direct result of the latest stimulus checks — which certainly is, and should not last to have a durable impact on inflation expectations, or was it because there are still 8 million jobless Americans that need to find a job before the Fed decides to tighten its purse’s strings is yet to be seen.

But the enthusiasm regarding the very good data somewhat surprised and brought many to conclude that Jerome Powell is doing a great job keeping the market hypnotized, or simply high on excess liquidity.

As such, Nasdaq (+1.31%) led gains in New York Friday, followed by S&P500 (+1.11%) and Dow Jones (+0.90%). Solid risk appetite and firm energy prices will likely push the FTSE 100 above the 7000p mark before the weekly closing bell.

Sweet mixture

Gold cleared the 50-day moving average resistance ($1753 per oz) on the sweet mixture of rising inflation expectations and easing US yields, which decreased the opportunity cost of holding the non-interest-bearing gold. And, gold prices will likely recover as long as we see further relaxation on the US yields front.

On the earnings front, BlackRock and Citigroup announced great earnings, as the SPAC boom in the US boosted revenues, though the slow lending attracted the investor attention and brought many to imagine that if the lending business doesn’t improve, the one-off events such as the short squeeze frenzy and the SPAC boom may not save the future quarters.

But the reflation theme plays in favor of the major banks. So, the one-off peak in trading activity perhaps came at the right time to give a hand to the big finance names to navigate through hard times. Bank stocks gained.

Coinbase, which jumped more than 10% pre-market couldn’t consolidate gains and closed the session 1.68% lower. As I warned in my earlier reports, the short-sellers are not far as the Coinbase’s market valuation may seem excessive to some given the prospects of increased competition in digital wallets business, which should rapidly eat into Coinbase’s sweet profit margins.

Large trading volumes

On the other hand, the competition is not here yet, while large trading volumes continue boosting Coinbase’s revenues for the moment. Bitcoin gave back a part of pre-Coinbase IPO gains but consolidates above the $62K mark, and altcoins are up by 1300% since the beginning of the year. All this volatility means profit for Coinbase and alikes.

Now, traditional asset managers inevitably question whether Coinbase’s market cap is worth more than the double of Nasdaq and New York Stock Exchange combined. Will traditional players go against the cryptocurrency exchange to defend their own interests; and let the world know that the crypto-assets don’t have their place among them?

It’s yet to be seen. But we may very well see the round two of the Retail versus Wall Street battle. Retail wanting a more affordable and democratized finance system, and Wall Street, well, willing to keep its main street dominance. Still, the Coinbase shares trade some 30% above the Nasdaq’s reference price of $250 per share.

Quick U-turn to Bitcoin, US regulators are now looking to jump in to give some structure to the crypto-market. This is before things get out of control. As the average person sees his or her crypto-exposure rise significantly; either because of direct purchases or indirectly through traditional investments; the risks of seeing an eventual bubble burst should be managed carefully.

At this point, the overall, global Bitcoin exposure should be reaching a point where if the bubble bursts; it could lead to another subprime-like crisis. And no one needs that at the moment.

Price-wise, I would expect to see consolidation above the $60K area during the weekend; and hardly a renewed leg up, but surprises are always around the corner in this industry.

  • The writer is a senior analyst at Swissquote