Stocks rally on transitory belief and improved tax outlook
US stocks are rallying as inflation fears ease, negotiations with 140 countries over a potential global minimum corporate tax rate is now at 15%, an improvement of the initial 21% proposal, and as crypto chaos subsides. A wrath of Fed speak confirmed their dovish stance over handling of inflation and the labor market recovery.
The Nasdaq is leading the charge today as mega-cap tech bounces back and on the improved corporate tax outlook. The broad commodity rally is hitting a rough patch after China intensified its campaign to cool the surging raw material market, announcing severe punishment for violations.
The race to the bottom for global tax rates has sparked the Biden administration’s drive into having a level tax playing field that could lead to lower rates for US based businesses. The 15% global minimum corporate tax rate would likely lead to a key reversal in his expected stance of raising the corporate tax rate in the US to 28%. He would probably settle for keeping it steady at 21%, which should be enough for keeping it competitive for doing business in the US.
Hold your horses on that oil price rally. Crude prices have been rising ever since Iran Foreign Ministry Spokesman Saeed Khatibzadeh stated differences remain around sequencing and verification. On Friday, energy markets headed into the weekend with some confidence that Iran and world powers would be able to revive the 2015 nuclear agreement.
Now that the Iranian monitoring pact with the IAEA has officially been extended, this time for a month and not three, pressure is on to get something done over the next few weeks.
Iran is the biggest wild card for the oil market. Iranian supply is the biggest question market and that will be determined if the US piecemeals the reduction of sanctions or provides an opportunity to have all of them removed. The energy market has priced in an extra 500,000 bpd of crude from Iran later this summer, but if most sanctions are taken off, an additional 1,000,000 bpd hitting the market by the end of the year.
WTI crude could be vulnerable to a decent pullback if Iran looks to be poised to have the majority of sanctions removed.
Gold continues to rally as Treasury yields remain anchored and as the dollar hovers near 3-month lows. Fed speak continues to support the idea that inflation in the US will be transitory and that is good enough to keep short-term bullish momentum in place for gold. Fed’s Brainard highlighted that she expects price pressures from bottlenecks and reopening to subside over time. Fed’s Bullard reiterated that he expects to see more inflation but added that it will mostly be temporary. Fed’s Bostic noted that price increases are happening because demand is responding quicker than supply.
Wall Street is on board with the Fed that inflation could be transitory and that should keep bullion investors happy. Gold continues to face resistance from the $1,900 level, so if the dollar stabilizes over the next couple of sessions, bullion might remain steady. Gold’s medium and long-term outlooks are still bullish primarily on the Fed’s ultra-accommodative stance, rising physical demand from China, steady central bank buying and improved ETF interest, and loss of confidence in Bitcoin as an inflation hedge.
Bitcoin volatility remains firmly in place. Follow through selling occurred over most of the weekend on mounting regulatory concerns from China and the US. China’s crackdown on crypto was mostly a reiteration but miners appear ready to move. In the US, everyone is anticipating that the Fed’s summer paper on the digital dollar could contain harsh requirements that could cripple the use case argument for cryptocurrencies.
Wild swings across the cryptoverse will continue to dishearten new crypto traders, while institutional money seems poised to keep their long-term bets. Many small retail traders seem to be recycling a playbook that will support massive purchases of Bitcoin on the collapse towards the $20,000 to $25,000 range. Today’s Bitcoin bounce stemmed from a broad-based risk-on Wall Street session and as many retail traders mistimed the bottom. Bitcoin is still down over 30% from the record highs made last month.
Bitcoin bulls need to see some calm in the market, but leverage trading across Asia keeps the rollercoaster ride going strong. Bitcoin’s rollercoaster ride could eventually have prices trading over and under the $40,000 level over the next month.
This commentary is kindly contributed by Edward Moya, Senior Market Analyst, New York, OANDA