Record highs for S&P 500 and Dow, Risk appetite thanks PBOC RRR Cut, Anticompetitive battle begins

Growth concerns were somewhat alleviated after the PBOC followed through and cut the RRR rate as speculated.  Much of this week’s weakness in stocks stemmed from rising coronavirus cases in various countries, so yesterday’s news that Pfizer is planning to begin testing of a Delta-specific booster shot provided optimism for winning the war against COVID.  Pfizer is seeking to have the vaccine booster shot to get EUA in August.    

Both the S&P 500 index and Dow Jones Industrial Average got their respective grooves back as investors still have to favor the US growth story against what is happening in both Asia and Europe. 

The 10-year Treasury yield is now almost 10 basis points higher from yesterday’s low, settling just below the 1.35% level. 

Anticompetitive

President Biden will sign an executive order that will tackle anticompetitive practices in Big-Tech, pharma, and a number of various sectors.  Business lobbies are standing up against this potential crackdown as it could really disrupt mergers and acquisitions. 

China Cuts

In less than 48 hours, China has quickly delivered on a pledge to cut the reserve requirement ratio used by banks.  This is not a broad-based rate cut but it does provide some support to banks.  Slightly softer than expected inflation data paved the way for the RRR cut of 50 basis points.  This was the first cut since early in the COVID-19 pandemic and it helped weaken the dollar against its major trading partners.

Oil

Crude prices are closely following the move in the dollar as energy traders can’t get a handle of what crude supply to expect in August.  The short-term supply side uncertainty suggests we could see a shortfall in the coming weeks, but that it could threaten the stability that has come from the coordinated efforts made by OPEC+.  Thursday’s low for WTI crude also coincides with the low made with the 10-year Treasury yield, suggesting the majority of the rally has nothing to do with traditional supply or demand drivers.  

Gold

Gold got a boost after the PBOC followed through and cut the RRR rate to boost lending in the economy.  The world’s second largest economy is concerned about growth, which suggests they are pivoting away from tightening.  Next week’s Chinese second quarter GDP might have a sharper slowdown than expected and that might be why the PBOC is trying to get ahead of the news. 

Gold is tentatively stabilizing above the psychological $1,800 level and that could open the door for a stronger rebound next week.  Next week is a busy week that is filled with many risk events that could very well support the argument for bolstering up safe-haven protection.  Investors will closely await Tuesday’s inflation report and kickoff to earnings season.  If Treasury yields can remain mostly heavy next week, that should be enough to help gold recover half of its losses made in June.  Technical bullion buying could accelerate with a daily close above the $1,830 level.   

Bitcoin

Cryptos are rebounding given the broad-based risk rally that stemmed from China’s RRR cut.  Dogecoin is higher after Elon Musk tweeted another case for supporting how it could optimize transactions.  Dogecoin is expected to have an update soon and that could be the make or break moment for it. 

Bitcoin was unfazed by Guggenheim Investments Chairman Scott Minerd’s downbeat comments.  Minerd believes Bitcoin is in the midst of a crash and could fall to the $10,000 level.  Minerd is a Bitcoin bear and a few weeks ago called for Bitcoin to see more declines with the $20,000 level being the next key support level.  Bitcoin has strong support at the $30,000 level and it looks like that should still hold given the fresh wave of accommodation that will stem from this recent wave of global growth concerns.