European and US stock futures are trading a little soft on the first trading day of the week. However, traders are largely optimistic about the stock market because of the stimulus and monetary policy support.
Monetary Policy Support
No matter how strong the economic recovery has been so far, the Federal Reserve isn’t likely to change its course of monetary policy this year. The Federal Reserve Chairperson, Jerome Powell, reaffirmed this message over the weekend. He made it clear that 2021 isn’t the year when the US markets will see any change in monetary policy. That is because millions of Americans still need more help from their lawmakers, and the Fed isn’t going to make any hasty decisions. Americans and lawmakers need to chip in together to rebuild the economy, and for this to happen, both need to understand their input. Thus, increasing interest rates this year is likely to kill the recovery effort.
In his “60 Minutes” interview with Journalist Scott Pelley, he said, “I’m in a position to guarantee that the Fed will do everything we can to support the economy for as long as it takes to complete the recovery”. So this means that the near-zero rate interest rate and $120 billion a month in the bond purchase programme are likely to remain in place for this year.
So the big question for investors and traders is that what does this means for equities and commodities. Well, for commodities, especially for industrial metals, the Fed’s message is going to provide a double tailwind because these industrial metals are already on fire, because of the huge optimism around the new $2.2 trillion infrastructure stimulus package. Such metals like copper and steel may continue to move higher.
The stock market is likely to find more comfort in the Fed’s message because traders will no longer need to be stressed about rising inflation. Any weakness in the earnings, which will kickstart this week, is likely to be supported by the Fed’s dovish stance.
We are also likely to see more upward pressure for precious metals such as gold and silver. Gold prices moved above a major resistance level, the 50-day simple moving average, on the daily time frame last week. But today, we see the gold price struggling to stay above this important level. This means that gold bulls are besieged once again, and if the price doesn’t move above this important moving average, we are likely to see more weakness.
Over the weekend, investors remained glued to their screens to watch the crypto price action. There is no doubt that there is a lot of optimism in the market, and investors aren’t only looking at the top crypto coin, Bitcoin. In fact, the reason that the market cap has doubled to $2 trillion in a very short time frame tells us that traders are looking at other coins as well. Nothing is more important than Ethereum, and we have heard many big-name investors declaring their bullish bets in ETH.
XRP coin, which was almost dead, also came to life over the weekend, and it finally remained above the $1 price mark. A lot of people who cannot afford expensive coins such as Bitcoin and Ethereum are buying XRP, and very few understand the risk attached to XRP if it loses its legal battle with the SEC. If the momentum continues like this for XRP, it is only a matter of time before we see the coin’s price flirting with its all-time high, which is above $3.