March 19, 2021

Fed’s Monetary Policy: Something’s Got to Give, But What?

Fed’s Monetary Policy: Something’s Got to Give, But What?

The US stock futures are trading lower as Treasury yields continue to rise. The general consensus in the market is that the Fed cannot maintain its monetary policy stance at current level because vaccine rollout and stimulus checks are making strong progress. The improvement that they are bringing in the economy is likely to push the economic recovery even further during the second quarter and in the second half of this year.

We have seen evidence of this in the Philadelphia Fed index again yesterday. The economic number produced its best reading in 48 years, it jumped from 23.3 to 51.8. the Philadelphia Fed index has been showing serious strength and strong consistency in the manufacturing sector for the last number of reading. It is highly likely that the service data is also going to echo this message very soon.

The economic data has boosted the bullish dollar bets further today, and we are seeing more upward move for the dollar index. This is having a toll on the gold prices, and highly likely to keep gold prices in check.

In the forex market, we saw the unanimous decision among the policy members of the Bank of England who decided to leave the monetary policy unchanged. The message was very clear,  the committee doesn’t intend to tighten monetary policy for now. There was also no timetable given as to when we can see the sailing path of the monetary policy changing.

Having said that, the BOE made a reference that it needs to see significant progress in the economy before it can think of changing monetary policy, and this is the only bench mark that we can take to understand when the BOE will be changing its monetary policy stance. Overall it is safe to say that the bank is not even thinking about raising interest rates.

In the commodity space, yesterday we saw a massive sell off for both Brent and WTI crude oil prices. Oil prices are down over 8% for this week, they have been falling for five consecutive days. Traders are worried about some new restrictions which are imposed by some European countries due to the rise in coronavirus numbers.

Basically, investors are worried that the new coronavirus wave could adversely influence the oil demand. In addition to this, we have also seen a slowdown in the vaccination process in Europe. Although, Germany, France, and some other counties, have resumed the AstraZeneca’s vaccine process which was stopped due to the fear of blood clot.

Over in the US, we have seen crude inventories data rising for the fifth week. Concerns are that Americans have started to pump oil at a level which could unbalance the supply and demand equation for oil.

As for Bitcoin, we are still not seeing animal spirits among traders. Bitcoin price moved higher yesterday, and today, the price it is staying above the 50-day SMA. This is positive from a technical analysis price perspective. But, we need the bulls to trash the 60K price level once again, and only then we could see the price moving towards new all-time high. This could also lead the bitcoin price all way to 70K.

In terms of adoption, yesterday was another big day for Bitcoin as Morgan Stanly, a Wall Street giant, started to offer investment in Bitcoin for its wealthy clients.

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