Week in a Glance: Inflation, Taxes, Commodity Markets, & Crypto

31 Mei 2021

The past week was not rich in high-profile events, but you cannot call it completely calm, especially for the cryptocurrency market. The week for crypto traders began with rather pessimistic news about the mining ban in China, as well as details of the sanctions for breaking the ban (I mean information from Inner Mongolia, which is going to deprive companies found to be mining licenses, as well as state preferences). As a result, several large mining pools rushed to suspend activity in China. But China is no less than 65-70% of all world mining. To this percentage can be added another 4.5% of Iran, which banned mining in the country for 4 months.

Despite such an obvious negative, it was possible to find a conditional positive. For example, the creation of the Bitcoin Mining Council, which should solve the problem of increased energy consumption when mining bitcoin (although what is there to decide - they would switch to the proof of stake protocol instead of proof of work, and the problem would be solved by itself).

But the problems of the cryptocurrency market are actually more about conversations than about business on a global scale. Much more important from the point of view of financial markets, things are happening around inflation in the world and the United States, as well as the possible actions of the central banks in this regard.

So last week gave another cause for concern among buyers in the US stock market: the key inflation indicator (PCE) rose by 3.1 percent in April compared to last year (the largest increase in the personal consumption expenditure index in 12 months since July 1992). And this despite the fact that a number of FRS officials last week directly stated that it is time to begin to reduce the volume of the quantitative easing program in the United States.

However, the markets so far ignore all this, justifying the high inflation figures by a temporary statistical anomaly, as well as by a sharp jump in prices in commodity markets, but the latter have already begun a correction, which means that prices will inevitably fall.

By the way, let's consider the commodity markets. According to Bloomberg, 60-70% of recent price increases in commodity markets are associated not so much with changes in physical supply and demand as with speculative activity. China on this issue last week asked the country's banks to stop selling investment products tied to commodity futures to retail investors, as well as to close all client positions in such instruments. In this regard, recall our recommendation to either sell on overbought commodity markets directly or sell commodity currencies such as the Australian and Canadian dollars.

The coming week is interesting, first of all, with the data on the US labor market, the quintessence of which will be the figures for the NPP. In addition, it will be very interesting to observe the outcome of the OPEC meeting.