Stock futures are still unsure about their direction, and they are swinging between gains and losses as investors continue to focus on the surge in coronavirus cases and the increase in Covid-19 restrictive measures.
One major theme that has come to light this week is that there are speculations in the markets that the road to the dovish monetary policy may end soon, which means that the Federal Reserve in the U.S. could be increasing the interest rates sooner than later. This particular theme hasn’t become mainstream yet. But it certainly has brought some life to the dollar index, which is off its lows on the back of this. The fact is that it is way too early for such a policy to take place because rising rates could seriously hurt the economic recovery for the U.S. stock market. In addition to this, the U.S. economy, where this chatter started, is nowhere close enough to be ready for such a situation—a rise in interest rates.
Investors in the U.S. are still betting on more fiscal stimulus from President-elect, Joe Biden, who promised that new fiscal stimulus measures would take place as soon as he takes office. The fact that Democrats control the House, the Senate, and the White House for the first time in nearly ten years, we should see new fiscal measures passing within the first 100-day of his presidency. This is a further indication that having hope or becoming concerned about the rise of the interest rate in the U.S. is baseless. The U.S. lawmakers aren’t going to expand on their fiscal policy on the one hand, and on the other hand, start pushing the interest rates higher. It just doesn’t make sense.
In terms of stocks and sector rotation, tech stocks are still taking the heat this week and failing to recover from their weekly losses. Stocks like Twitter and Facebook are completely out of luck. There are concerns among investors that these tech companies are likely to come under heavy regulatory scrutiny under Biden’s presidency. This means that the sell-off that we see for the tech sector is likely to intensify.
In the commodity space, we see both Crude and Brent trading at their highs, which is chiefly because traders are optimistic about economic growth. They know that the supply side of the equation is under control, and demand is increasing. Despite all the strict coronavirus measures, the traffic on the road is much higher than any of the previous lockdowns. This means consumers are actively travelling.
As for the gold prices, we see them moving away from their lows of the week, and traders are trying to push the price back above the 50-day SMA on the daily time frame. On the fundamental side, the hesitation of favouring riskier assets among investors and traders is making the shiny metal more attractive. The fact is that if we look at the U.S. equity market, it doesn’t seem like we are going anywhere, and given the chaos created by the coronavirus, it is quite clear that there is plenty of uncertainty. This particular factor is also helping the gold price.
There is no doubt that excessive volatility has eased off in the crypto market as Bitcoin’s price has started to consolidate at its current level. This is certainly positive for Bitcoin because, on the one hand, we are trading above the 30K mark, which gives much stronger hope for the Bitcoin rally to continue towards the 50K price level. On the other side, the current consolidation will cool down some of the technical momentum indicators that have been overheating for some time. The biggest threat for Bitcoin in 2021 remains regulations; governments around the globe could try to tighten the screws further. Although it is nearly impossible to control Bitcoin, the unnecessary measures do create bad vibes for Bitcoin, resulting in further sell-off.