A robust GDP growth in the first quarter, a fresh pandemic low print in weekly jobless claims, and the talk of a $6 trillion federal spending package for the coming fiscal year boosted appetite in most equities and the US dollar.
Technology stocks remain on the backfoot, as a improved economic growth and higher government spending revived inflation worries and bolstered the growth-to-value migration across equities.
Activity in FTSE and DAX futures hint at a positive start on Friday. Softer pound, firm appetite in bank stocks, and strong oil and commodity prices should keep the FTSE bid above the 7000p level before the weekly closing bell, although the energy stocks don’t benefit from the latest positive push in oil prices as environmental groups and activists have stepped up pressure on big oil groups for taking action to tackle the climate change. Engine No.1 won seats at Exxon’s board, a Dutch court ordered Shell to align targets with Paris climate agreement and Chevron’s shareholders voted 61% to cut emissions from the end-use of its oils. The face of the world is changing, and big polluters are asked to adopt. But despite rising environmental pressures, oil companies remain a good reflation play. And price pullbacks mostly due to the unprecedented shakes in terms of regulation and board reshuffle could be interesting buy windows for investors looking to strengthen their post-pandemic trauma portfolios.
But more importantly, the robust risk appetite gave an additional push to the meme stocks, which are probably boosted by capital outflow from cryptocurrencies, as well. Solid risk appetite and excess liquidity sent GameStop shares to a fresh 2.5-month high and AMC overshot above the January highs and tested the $30 per share, an impressive performance considering that the company shares kicked off the year near the $2 per share and saw its price multiplied by 15, although the movie theatre business was all but flourishing during the first three months of the year, if nothing, due to the pandemic lockdowns.
Some other stocks that benefit from the wallstreetbets-led short squeeze are Beyond Meat, Biocryst, and cannabis stocks. We will certainly see further inflows in meme stocks, as long as the FUD, the fear-uncertainty and doubt, clouds hang over cryptocurrencies.
And all this activity is seemingly happening in the expense of gold, as the solid economic data and more importantly Joe’s fresh $6 trillion fiscal spending package pressures the US treasury yields higher. Another major boost in US fiscal spending can only revive the inflation expectations and force the Federal Reserve (Fed) to tighten its purse’s strings earlier than previously thought. Given that the actual inflation is above 4%, the Fed can’t let the economy run too hot and catch fire.
Therefore, prospects of a quickened rise in US yields should continue weighing on non-interest-bearing gold and encourage a deeper downside correction toward the $1875/1850 range.
A final word on cryptocurrencies. Looking at the unrest across the crypto market, there is a chance that we see another hectic weekend trading in Bitcoin and other cryptocurrencies. Technically, there is a major support at the $30K level, and given that the sell-off urge has eased and most leveraged positions have been closed, there shouldn’t be an important threat on this level. But if we see Bitcoin slipping below the $30K handle, which is the major Fibonacci 61.8% retracement on September – April rally, we’ll have a further affirmation of an extended bear market. And given the strong negative correlation among cryptocurrencies in times of heavy selloffs, a further plunge in Bitcoin will likely give no change to altcoins to keep their heads above water.