Crypto and crude take off as the markets await this week’s crucial Fed meeting
Good morning, Bull Sheeters.
U.S. futures have been trading higher most of the morning, as the week gets off to a mildly promising start. European stocks, too, are doing well as investors continue to boost up the reopening trade.
The big action, though, is in commodities and crypto. The rally in crude continues as demand surges. And, Bitcoin had a rare good weekend. You can thank Elon Musk for that.
The big event to watch this week is the FOMC meeting. Yep, it’s Fed week.
But first, let’s check in on the rest of the markets action.
- It’s a light trading day in Asia with Hong Kong and Shanghai closed for the Dragon Boat Festival holiday. Nikkei is up 0.7% in afternoon trade.
- Israel—yes, I’m putting Israel here in this section—has a new leader after the country’s parliament, the Knesset, voted on a new government that, for the first time in 12 years, is not led by Benjamin Netanyahu.
- Oil just hit a 32-month high.
- The European bourses are higher out of the gates with the Stoxx Europe 600 up 0.6% in the opening minutes, before falling. The benchmark finished last week in record territory.
- London’s FTSE is one of the better performers in Europe this morning even as speculation mounts that Boris Johnson will have to delay by a few weeks the lifting of social-distancing curbs as delta-variant infections climb. Despite that, analysts are bullish on the pound.
- Starting today, Rome and the surrounding Lazio region are considered “zona bianca,” which means the lifting of all curfews. Still, there’s a mad scramble under way to colonize the streets. Bars, cafes and restaurants here in the city are commandeering adjacent parking spots and setting up tables and umbrellas, causing a bit of a riff with motorists.
- U.S. futures are nudging higher. That’s after the Nasdaq and S&P 500 finished in the green last week, with the latter in record-high territory.
- FAANGM shares—namely Facebook, Apple, Amazon, Microsoft and Alphabet’s Google—are mixed in pre-market trading after House lawmakers on Friday introduced a long-shot bill to break up Big Tech.
- On the calendar this week we have the Fed’s June FOMC meeting, with Jerome Powell holding his press conference on Wednesday. The central bank won’t alter its long-running accomodative policy, but keep an ear out for its take on inflation and the T-word, tapering.
- Gold is off, trading around $1,860/ounce.
- The dollar is flat this morning.
- Crude is up again, with Brent above $73/barrel.
- Bitcoin is trading a shade under $40,000 this morning. It tested that much-watched price level, but couldn’t quite crack it.
Tapering over the cracks
If my email in-box is any indicator, the mood on Wall Street has turned decidedly bullish again.
That’s particularly good news if you glance at the calendar. We’re heading into the slow summer months, and we have an FOMC meeting this week. On the latter, expect a lot of chatter about inflation, interest rates and, even more damaging, the fear of rising inflation and interest-rate tightening.
A recap: inflation is running at about 5%, which is a lot higher than the steady-as-she-goes 2% rate that central bankers prefer. If these high prices persist, the Fed, the thinking goes, will have to nudge up borrowing rates to put the lid on spending. Wall Street have a single word for what I just described in that last sentence: “tapering.”
The consensus is that we won’t hear even a hint of tapering this week from Powell & Co., and that we might not even get it until September or later.
As Goldman Sachs’ economic research team writes, “We do not expect Chair Powell to deliver the first hint at tapering in June. Participants have begun ‘talking about talking about tapering,’ and some would like to get the process underway sooner in case inflation pressures prove persistent.
“But we think that Powell likely agrees with Governor Brainard and President Williams that the labor market has not yet come far enough. We continue to expect the first hint in August or September, followed by a formal announcement in December and the start of tapering at the beginning of next year.”
Meanwhile, Aneta Markowska, the chief U.S. economist for Jefferies, believes the data point we should all be watching is jobs. According to her calculations, the Fed will need to see the U.S. economy to add 3 million new jobs before it will consider making any changes to monetary policy. Again, that would put us on a September-October time frame.
The not-this-summer narrative should be a boost for stocks—or, at least, won’t sink this steady little rally we’ve been on.
On cue, the Jefferies equity strategist team just upped their full-year S&P 500 target to 4,350 (which assumes a further 2.4% gain from Friday’s close), and year-end EPS to $200. They feel even better about small-caps, increasing the year-end target to 2,450 (up 4.9% from Friday’s close) and $92 EPS.
Of course, there will be winners and losers as the reopening trade continues to push into the summer. On the former, Goldman and Jefferies reiterate that they’re overweight Europe and emerging markets as this is where the big growth spurts will happen in the next two quarters.
But skimming my in-box this morning, it’s hard to find much reason to do anything but keep the faith in stocks this summer.
Later today, I will be heading back down to the DR Congo—virtually, of course—to the mining community of Kolwezi.
You’ve probably never heard of Kolwezi, but there’s a decent chance there’s a piece of Kolwezi in your car, your laptop or powering your electric grid. Kolwezi is rich in copper, cobalt and other essential metals that power our digital age. The mines in and around Kolwezi are key to the planet’s decarbonization ambitions.
There’s a problem, though. A lot of kids toil in the mines, ultimately bringing some of that ore to the markets. That’s the subject of a 2015 documentary film I co-produced. In the film, we detailed the amazing work of Bon Pasteur Kolwezi to get the kids out of the mines, and into the schools. They’ve had tremendous success, and it’s drawn the attention of some of the world’s biggest companies.
But there’s still a lot of work to be done.
They invited me to moderate an impressive panel—you can sign up here— that will detail what works in eradicating child labor from the copper and cobalt supply chain—and what still needs to be done.
If you’re interested, please join us today from 8 a.m.-10 a.m. ET. (If you are interested, but cannot virtually attend the event, just email me. I’ll send you a link once the panel discussion goes online.)
In the meantime, there’s more news below.
As always, you can write to firstname.lastname@example.org or reply to this email with suggestions and feedback.
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As I mentioned above, crude is cruising. Future contracts have hit a near-three-year high, making it one of the best performing commodities this year. All told, crude is up an astounding 46.1% so far in 2021.
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