Forex Trading Review Guide: March 2021

Wednesday, March 31, 2021

Euro Retreats From Session Highs Against Dollar as France Widens Lockdown

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Bitcoin returns to recent highs

Recently, Visa, one of the world’s largest credit card payment companies, announced that it will upgrade its cryptocurrency service to allow users to settle transactions with USD Coin (USDC) on its payment network. USDC is regarded as an encrypted stable currency, and 1USDC is equivalent to 1 US Dollar. In order to save the cost and complexity of converting digital currencies in cryptocurrency wallets into traditional currencies for settlement, Visa stated that it had cooperated with its partner Crypto.com and digital asset bank Anchorage earlier to send USDC to Visa through the Ethereum address of Anchorage. In this regard, Visa Executive Vice President and Chief Product Officer Jack Forestell said, “This is equivalent to an important milestone set by the need for financial technology to manage businesses with stablecoins or cryptocurrencies” and “safely promote the use of all Payments in different currencies”.

In addition, the global payment giant Paypal officially announced yesterday that US users can pay with Bitcoin, Ethereum, Bitcoin Cash and Litecoin to millions of online merchants around the world through its digital wallet. In addition, users can also sell cryptocurrencies through the platform. It should be noted that the platform still requires the cryptocurrencies to be converted before settlement. If the user converts the encrypted currency to US Dollars as the settlement method, then this will not be included in the additional fee; if the user converts the encrypted currency to non-US currency as the settlement method, then this will be settled according to the standard exchange rate.

In addition, the Chicago Mercantile Exchange (CME) also stated yesterday that if regulatory approval is passed, the exchange is expected to start adding a bitcoin derivative to the financial market in May this year, Micro Bitcoin futures. According to CME’s contract specifications, the contract value of each Micro Bitcoin is only 0.1 Bitcoin, which is much lower than the contract value of Standard Bitcoin, which is 5 Bitcoin. In this regard, CME stated that Micro Bitcoin not only retains the functions and advantages of Standard Bitcoin, but also “supports investors to hedge against the price risk of spot Bitcoin” and “investment methods are more efficient and cost-effective”.

Technical Analysis:

Judging from the daily chart, Bitcoin against the US Dollar is in an ascending channel; the upper Bollinger Band, the historical high of 60,721 the 100% Fibonacci extension level of 61,910 is the key resistance area. From the indicator point of view, the MACD double line seems to be forming a golden cross and the red kinetic energy column (histogram) is gradually shrinking; the relative strength index (RSI) and stochastics are both near the overbought area. Calculated in accordance with the Fibonacci extension, should the key resistance on the recent success of the asset be broken, then the next resistance position is seen at 70,945 (Extended Fibonacci level 127.2%) and 82,435 (161.8% Fibonacci extended horizontal). Overall, the market is optimistic about the future trend of Bitcoin. There are those who by Fibonacci number (Fibonacci Sequence) calculation expect Bitcoin to reach 70,000; on the other hand, some analysts pointed out earlier this year that Bitcoin could reach the 100,000 level this year.

Judging from the 4-hour chart, the current asset price has left the upper Bollinger Band, and the indicators show signs of slight easing of bullish momentum. In the short term, the middle Bollinger Band below the asset price is still critical. If the price of the asset falls below the middle Bollinger Band, it may mean that it will face a short-term technical adjustment. The lower support is 54,250 (the bottom line of the ascending channel, the lower Bollinger Band and the long-term moving average, ) and 49,230 (61.8% Fibonacci extension level).

Click here to access our Economic Calendar

Larince Zhang

Market Analyst – HF Educational Office

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Is bitcoin going mainstream, and should you buy in?

SEE MORE A beginner’s guide to bitcoin: how to buy bitcoin
SEE MORE Why you should own bitcoin and gold as inflation returns

Last week, US Federal Reserve chair Jerome Powell made his views on bitcoin clear: it’s “an asset for speculation”, one that “is essentially a substitute for gold rather than for the dollar”, Powell told the Bank for International Settlements’ digital banking conference. Nor is it “a useful store of value” because of its volatility.

Powell’s comments are perhaps unsurprising. You wouldn’t expect the governor of the world’s most important central bank to say: “rush out and buy bitcoin”. Yet his views are not necessarily shared by Wall Street, with the likes of BNY Mellon and Goldman Sachs taking bigger steps into the area of cryptocurrencies in general.

It’s little wonder that institutions are becoming more interested. Bitcoin has now been around since 2008; in that time it has survived several boom and bust phases, and in each boom phase, people have potentially made a lot of money.

Today, despite all the scepticism, it remains trading close to its recent all-time high of $61,644, thanks to a search both for inflation hedges (given the scale of public debt and money being printed by central banks) and, for returns in a low-interest rate environment coupled with frothy equity and bond markets, points out Anthony Hardy, research analyst at Franklin Equity Group.

So are cryptocurrencies becoming mainstream – and should you invest?

Banks are turning bullish on crypto

Mainstream adoption of cryptocurrencies is growing fast. Since the start of the year, several big banks have embraced crypto. Goldman Sachs, for example, reintroduced plans to launch a cryptocurrency desk for futures trading.

It’s not alone. Just a few months after America’s oldest bank – Bank of New York Mellon – announced it will roll out a new digital custody unit later this year, Morgan Stanley became the first bank to give its wealth management clients access to three cryptocurrency funds, according to CNBC.

Meanwhile, in a 108-page report published in February (which came in for some criticism), Citigroup gave bitcoin a big endorsement, saying that it “may be optimally positioned to become the preferred currency for global trade”.

It is not just the banks who are increasingly endorsing crypto. Tesla’s Elon Musk started accepting bitcoin as payment for cars earlier this month, just a few weeks after Tesla shifted $1.5bn into bitcoin.

The crypto rally has also captured the attention of individual investors who view bitcoin as a potentially better hedge against inflation than traditional hedges such as gold, primarily because bitcoin has a fixed long-run supply of 21 million coins, compared to central banks’ ability to print as much fiat currency as they like.

The US recently approved a $1.9trn stimulus plan which market participants think may be seen as the tipping point for inflation to stage a comeback (and now Joe Biden’s administration is pushing for a further $3trn spending plan). And with the Fed signalling that it won’t raise rates until 2024 at the earliest, inflation is very much at the fore of investors’ minds.

Why bitcoin may not be the best hedge against inflation

But are people really buying bitcoin because they think it’s a good hedge against inflation? Bank of America doesn’t seem to think so. “Bitcoin has… become related to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payment mechanism”, Bank of America’s commodity and derivatives strategist Francisco Blanch, said in a recent note, according to CNBC.

Economist Nouriel Roubini – renowned for his bearish views and a long-time critic of digital currencies – agrees. “If people were really worried about inflation they would diversify in a wide range of assets that are historical good hedges against inflation. That's not happening”, he says.

Another point is that, while bitcoin does have a fixed supply in much the same way other assets viewed as inflation hedges such as gold, it’s still possible to launch competing cryptocurrencies which can expand the market, argues Daniel Kern, chief investment officer at TFC Financial Management.

Should you invest in cryptocurrencies?

Discussions about cryptocurrencies can be quite polarised. True believers get very defensive, while ardent crypto critics act as though the whole thing is on the verge of collapse. We take more of a middle view.

Ignoring crypto seems unwise. It’s clear that digital currencies and the blockchain are of great interest to governments and central banks. And bitcoin has now managed to survive enough booms and busts to convince us that it’s not a flash in the pan. So investors should pay attention to the space and educate themselves on it.

In a recent issue of MoneyWeek magazine, Charlie Morris made the case for holding both bitcoin and gold as hedges against different stages of inflation – he believes they complement rather than compete with one another.

Equally, if you’re not an early adopter or particularly tech-minded, we wouldn’t worry too much. If crypto becomes significant enough to be considered an asset class in its own right (rather than an evolution of currencies, say), then institutional adoption will eventually lead to investment vehicles that are more easily accessible to private investors.

If you’re interested to learn more about bitcoin generally, then you can currently get a free beginner’s guide to bitcoin when you subscribe to MoneyWeek. Get the report, plus your first six issues, absolutely free here.

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This Time OPEC can Disappoint Fragile oil Market

China economic data released on Wednesday underpinned risk mood in the markets. Activity in key manufacturing sector rose in March compared to the previous month. Export orders accelerated growth, which gave confidence to investors who hold the bet on global expansion as leading nature of this indicator suggests markets can expect growth in exports, real wages and import activity of trading partners in the coming month. The official PMI rose from 50.6 to 51.9, beating the forecast.US markets closed in the red, SPX has been trying to break above 3980 points for two weeks, so far unsuccessfully. It is hoped that breakout will follow the announcement of Biden's infrastructure plan, since depending on the direction of government spending, Biden's economic plan could provide a significant increase in the revenue of US companies.The dollar also rallied in anticipation of Biden’s speech, but as we discussed earlier, the dollar’s chances of growth are rising as the pace of recovery in advanced economies becomes patchier, with the US economy breaking out in the lead thanks to successful vaccinations and a faster pace of lifting restrictions that stifle activity.A strong ADP report will boost the odds of positive labor statistics on Friday and will likely allow the dollar to accelerate gains against opponents as the topic of US recovery leadership has been driving the dollar's corrective rally this week.The data on inflation in the Eurozone turned out to be mixed and in general fell short of the forecast. The broad consumer inflation index accelerated to 1.1% in March, but the main contribution was made by the rise in energy prices (+ 4.3%). Core inflation, which more accurately reflects the trend in consumer spending, slowed down from 1.1% to 0.9%. It is becoming harder for the ECB to argue that the inflation story is going according to plan, so there is a risk that it will intensify the rhetoric about the PEPP asset purchase program. This can only make the euro worse.OPEC is scheduled to meet on Thursday, but the report from a preliminary Joint Technical Committee meeting showed that the organization is worried about recovery in demand as the infection rates rise, leading to tightening lockdowns and reduced consumer mobility. The forecast for demand growth in 2021 was revised down from 5.9 million to 5.6 million bpd. According to OPEC, oil reserves, despite relative unloading, still remain above the average level of 2015-2019. There is a risk that OPEC will extend production restrictions in May, which keeps prices from falling further.Stock data from the API indicates a continued negative trend. Stocks rose by 3.91 million barrels last week, once again falling short of expectations. However, gasoline stocks fell immediately by 6 million barrels, which indicates a fairly strong demand in the United States and is a very positive moment of the report.Technically, oil has dropped below a key trend line and is currently trading in a tight range. A potential disappointment at the OPEC meeting could send prices lower from the horizontal resistance level at $62 a barrel:Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Midweek Market Podcast – March 31

The Market Week – Quarter End and beyond

HotForex · Midweek Market Podcast – March 31

The Market Week – Quarter End and beyond

The focus of attention once again this week is on the Bond market, as the US 10-year treasury yield spiked to 1.76% and the USD continued its significant moves into Quarter end. The enormous $1.9 trillion fiscal stimulus bill could be followed by a blow-out $2.25 trillion Infrastructure Bill; President Biden will outline the details, starting today.

This week sentiment was spooked as a huge Margin Call on Bill Hwang’s Archegos Capital caused potential losses of $6 bn for the investment banking sector with Nomura and Credit Suisse most exposed. Archegos had reported assets of $10 bn but highly leveraged positions of around $50 bn when the selling began last week.

Unemployment remains stubbornly high globally but this week signs of a turnaround may be on the cards. Last week’s unemployment claims beat expectations at 684,000, and the pandemic low of 712,000 from November. This month’s key Non-Farm payroll consensus is 650,000 new jobs for March with a huge range in estimates from 115,000 to 1.1 million.

The vaccine rollouts continue to gain traction globally, however, the situation in the EU, with rising infections, extended lockdowns in much of the continent and a low vaccination rate, coupled with the persistent concerns over the AstraZeneca vaccine, weigh on the EUR.

This week FX volatility picked up as the USD moved higher into month and quarter end. The USDIndex rallied to new five-month highs at 93.45. EURUSD continued to weaken and remained under 1.1800 to post five-month lows at 1.1704. USDJPY clocked a one-year high 4 cents shy of 111.00 as the Japanese financial year ended. Cable moved up from under 1.3700 to peak at 1.3845 before settling in the high 1.3700s.

Global stock markets turned more volatile, amid the Archegos fire sale and as the rotation from high growth technology stocks to financials, energies and industrials continued. The USA30 & USA500 posted new all-time highs. High valuations and an expected rise in inflation could weigh on further gains.

The Gold price moved lower again this week to once again test and break the key $1685 level and remains biased lower with the stronger USD and higher yields while Bitcoin also had another volatile week but has breached immediate resistance at $58,000 and eyes a new all-time high over $60,000.

USOil prices recovered from last week’s $57.25 low as the Ever Given was finally refloated and ahead of this week’s OPEC+ meeting with talk of Russia happy to maintain production caps during April and even May. $60.00 a barrel remains key.

The yield on the US 10-Year Treasury Note now holds well above the psychological 1.500 level, as it tested above 1.7500 to new 14-month highs this week at 1.7600. The potential $1.9tn fiscal and $2.25tn infrastructure stimulus packages, the rapid uptake of the vaccines and opening of the economy added to the spectre of rising inflation are combining to keep yields the main focus of the markets.

Click here to access the HotForex Economic Calendar

Stuart Cowell

Head Market Analyst

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Why is gold having such a miserable time and when will it turn around?

SEE MORE Why you should own bitcoin and gold as inflation returns

Oh, for those sunny days in August when gold’s rise seemed inexorable. New highs came every day and two thousand bucks per ounce was a thing gold bugs looked down on, not up to. Here we are in March (always a bad month for gold) and we can’t get above $1,700.

The sun may be shining, but – no doubt to the surprise of ancient cults who felt one was the teardrops of the other – gold is in an inexorable downtrend.

What’s the reason – rising bond yields, the rising US dollar, the fact that bitcoin has stolen gold’s thunder? Does it even matter why? It’s going down – that’s all you need to know. “When does it start going up again?” is the question..

Hopes for a strong economic recovery are hurting gold – for now

April is usually a good month for gold. We are currently re-testing the lows of early March. Maybe they hold and we get a little bit of a rally over the next month. It’s not like gold isn’t oversold.

Then again, May is not usually a good month; June is the month that those in the know tend to make their annual gold purchases. Is that when gold makes its final low? That’s my guess.

You know my theory: gold is an analogue asset in a digital world. Digital is where all the growth is. Digital is where all the innovation is. The digital economy has left the physical economy for dead.

But there has been something of a turn of late. The Great Rotation, they are calling it. Clever money is abandoning growth (digital) in favour of value (physical). Maybe some of that clever money will see extraordinary value in gold. It’s not like the value isn’t there.

When you buy gold, you don’t get a yield – it pays no interest – you get storage costs. So if bond yields are rising, money that would otherwise have gone to gold (in the event that yields were flat or falling) goes to bonds instead. There’s even an opportunity cost to holding gold. Ergo rising yields are bad for gold.

For whatever reason – perhaps because it takes ten years to take a mine from discovery through to production – gold and ten-year bond yields tend to correlate in a way that is much more apparent than with shorter-term interest rates.

As we know the ten-year yield is rising, and thus gold pukes. However, there is a silver lining, forgive the pun, to all this. Rising yields suggest that somebody somewhere sees a strong economy ahead.

Despite the continued negativity in the press around Covid-19, and the reluctance of our glorious leaders to let you do anything that is tantamount to leading a normal life, markets do seem to be anticipating that the pandemic is entering its final stages.

Perhaps it’s the vaccine roll-out, perhaps its exhaustion – but the “Back to Work, Back to Normal” trade is on. Try booking a table in a restaurant if you don’t believe me. There is a lot of pent-up demand for getting out of the house – whether it’s going to the pub, going to a restaurant or going on holiday. These are all “physical economy” things. As we have mentioned, household savings in the UK and North America are at record highs. There’s a lot of dough waiting to be spent on real life.

Rising yields confirm the theory. Rising yields indicate an expectation of economic strength. A strong economy gives rise to inflation. Gold is the de facto hedge against inflation. In the long term then, these rising yields are good for gold. You wouldn’t know looking at the price at the moment, but the stage is being set for a gold price rally later in the year – but we are not there yet. That’s my theory.

A lot of that newly-printed money is sitting in the hands of real people, waiting to go into the real economy. Covid has hit globalisation – we are going to benefit less from China’s cheap labour costs, and pay higher local rates. So it is going to get that much harder to mask the inflation.

The US dollar is getting stronger

We have addressed the physical/digital issue. We have addressed the rising yields issue. Now we turn our head to the third and final piece of the jigsaw: the US dollar.

A rising US dollar is not good for gold. Well, yes and no. It’s another one of those, “short-term bad but not necessarily long-term bad” issues. There have been plenty of occasions in the past when the two have risen together, though on the whole, yes, a falling dollar is better for gold than one that’s rising.

The dollar was awful in 2020, with the dollar index (a measure of the dollar against a basket of other major currencies) falling from 104 at the peak of the Covid crisis to 89 around the turn of the year. There is a lot of long-term support in that 88-89 area and, many times in the past, it has proved a turning point. As technical analysts might say, there is a lot of price memory there.

The US dollar is now in an uptrend. How long does this remain the case? Currently at 93, it’s looking hot, so much so that we might get a little bit of a pull back (giving us our April rally in gold). But looking at a longer-term horizon I think it goes higher. There is resistance in the 94-95 area. If it gets above that and goes towards 100 it will get very painful for the gold bugs.

I’m not quite sure what to make of the dollar, I must say. No doubt it will all look obvious in retrospect – it always does. But for now all I can really say is “uptrend”. I guess that’s all one needs to know: it’s going up.

But I think there is something to my roadmap for gold. A rally from oversold levels in April, declines in May, followed by longer-term lows in June. But when, or should I say if, the inflation cat is out of the bag, gold will have its day again.

Bottom line: it’s a bear market. You get tradable rallies in a bear market, but a bear market is a bear market. They can go on for longer than you think. They can “make no sense”. But they don’t go on forever.

Not yet, then. But soon, my pretties.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

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Not been driving much? Here's how to save money on costly car insurance

Car insurers continue “to punish loyal customers with price hikes despite a massive drop in the number of road accidents” in lockdown, says Will Kirkman in The Daily Telegraph. Four in ten customers who stuck with the same provider saw their annual bills rise by an average of £49 a year in the last three months of 2020, says comparison site Confused.

The so-called “loyalty penalty” is expected to be banned from July but until then insurers can raise your premiums when you renew. So, what can you do to cut your bills? Shop around when it is time to renew. “We know from our research that insurers are still putting up renewal prices for some drivers,” Louise O’Shea from Confused told The Telegraph. “Even if the increase is small, please don’t settle for this as there will be an insurer out there willing to offer a better price.”

When you are looking for a new car-insurance policy make sure you think carefully about the details you give for your driving habits. We have all driven a lot less over the last 12 months, and it is unlikely your mileage will hit the same level in 2021 as in 2019. So think about cutting your estimated annual mileage. Just don’t get carried away: underestimate it and you could face problems if you make a claim.

Car insurance charged by the mile

If you aren’t driving far, consider switching to a policy that charges you per mile. RAC is offering this type of policy to those who estimate their annual mileage at under 6,000 miles a year. You pay an activation fee of £50, then a mileage premium of at least 4p a mile, plus a premium for when your car is parked, starting at £14 a month. This policy won’t track how you drive, only how far. You stick a tag in your windscreen and pair it with an app on your phone.

“Someone who paid a £50 set-up fee, plus a £16 a month parked premium and was charged 8p a mile for their RAC Pay by Mile insurance policy would end up with a bill of £522 for the year if they covered 3,500 miles,” says David Byers in The Times. That is below the average premium of £603, says Compare the Market.

But assess your mileage as accurately as you can before you sign up: someone covering 6,000 miles a year on the same payments as above would rack up an annual premium of £722 – well above the average. RAC is only the second insurer to offer pay-as-you-drive coverage; By Miles is the other. You may also be able to ask your insurer for a partial refund if you haven’t gone as far as you estimated when you signed up. Direct Line offers Mileage MoneyBack of 2% of your premium for every 1,000 miles you didn’t drive. Aviva and Sheilas’ Wheels also offer refunds. You have nothing to lose by asking your insurer if they will give you some of your money back.

from Moneyweek RSS Feed https://moneyweek.com/personal-finance/insurance/602975/not-been-driving-much-heres-how-to-save-money-on-costly-car
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Make sure you max out your pension contributions this year

With the end of the tax year on 5 April fast approaching, have you made maximum use of your private-pension contribution allowance? Given the generous tax reliefs available, it makes sense for most people to save as much as they can afford.

Contributions to private pensions attract tax relief at your highest marginal rate of income tax. So, if you’re a basic-rate taxpayer, contributing £1,000 to a pension costs you £800. If you pay the higher rate, the cost of the same contribution falls to £600; this falls to £550 if you’re an additional-rate payer.

Remember the pensions annual limit

However, the amount you may contribute each tax year is limited by your annual allowance. If you exceed this threshold you will have to pay a tax charge. For most people, the annual allowance is worth £40,000 or 100% of their annual earnings, whichever is the lower of these two figures. However, even very low and non-earners get an annual allowance, worth £3,600 a year.

This allowance covers everything going into your pension, including any contributions from an employer and the value of the tax relief you receive. If you’re earning £40,000 a year and contributing 4% of your salary, you’ll be paying in £1,600 of your own money and then receiving a further £400 in tax relief. If you’re also getting a 5% contribution from your employer, this will be worth another £2,000. Altogether, you will have used up £4,000 of your £40,000 annual allowance.

This is how you calculate your annual allowance usage for all defined-contribution pension schemes, whether they are at work or individual arrangements such as a personal or stakeholder pensions. More complex rules apply to defined-benefit plans such as final-salary pension schemes, but if you’re a member of one of these, your employer should be able to tell you how much of your allowance you have used up over the year. Remember that the annual allowance applies across all your pension plans if you have more than one. So, if you’re contributing to a plan at work but are also paying into a plan of your own independently, you need to add up the total value of all your contributions.

Also note that special rules apply to those with high earnings. Once your income goes above £240,000, your annual allowance begins to taper downwards, by £1 for each £2 of income you earn above this limit. So someone with earnings of £270,000 sees their annual allowance decline to £25,000. The tapering continues until your earnings hit £312,000, by which time your annual allowance is just £4,000.

In practice, most people don’t get anywhere near using their annual allowance each year, but if you do have a potential problem – or you’re determined to wring every last bit of value from your allowance – the carry-forward rules may help.

These let you carry forward any unused allowance left over from the last three tax years to add to this year’s allowance. The only caveat is that you still can’t contribute more than you earn over the course of the year. You must also have been a member of a private pension scheme in the year from which you are carrying forward any unused allowance.

Look to Isas and VCTs too

Another option for savers at risk of breaching the annual allowance is to look at alternative homes for long-term cash. Individual savings accounts (Isas) and venture-capital trusts (VCTs) are popular options since they offer tax incentives of their own, but even savings and investments with no tax breaks attached can be worth considering.

Finally, note that once you begin withdrawing money from your pension schemes later in life, you are still allowed to continue making contributions to top it up. But in these cases, a special “money purchase annual allowance” of just £4,000 a year usually applies.

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Deliveroo has hit the market – but it’s not getting the warmest welcome

SEE MORE Why the Deliveroo IPO is good for shareholder democracy
SEE MORE Should you buy Deliveroo shares?
SEE MORE Court decision on drivers’ rights sends Uber’s share price into reverse

Deliveroo’s much anticipated £7bn London listing – the biggest in a decade – hit the market today as conditional trading started. To say it hasn’t got off to a good start is an understatement. The company listed at 390p – the bottom end of a range that had already been reduced heavily. But in early trading the share price fell by as much as 30%.

When the food delivery company announced that its IPO would take place in London, the decision was heralded as a “true British tech success story,” by chancellor Rishi Sunak. So this is not the sort of “pop” that the company, the exchange, its IPO investors, or Sunak would’ve been hoping for.

It wasn’t an easy ride to get here in the first place. The listing came amid a furore around its governance and working practices, which forced it to slash its valuation to the lower end of the target range, after it had hoped to achieve a market capitalisation as high as £8.8bn for its debut.

So why the lower valuation? One of the more headline-grabbing issues has been the wave of fund managers who have said they would not participate in the IPO due to concerns around Deliveroo’s treatment of workers – and its unusual shareholder structure. M&G, Aberdeen Standard, Legal & General Investment Management, CCLA, Aviva Investors all announced they would shun the IPO all together.

The concerns are two-fold. Firstly, there’s the question of “gig” workers’ rights. This is a controversial area and one where governments and courts are paying closer attention. Second, there’s the fact that co-founder and chief executive, Will Shu, will retain control for the next three years, due to his ownership of shares with far more voting rights than the ordinary shares.

Why fund managers are concerned about the IPO

Concerns around the treatment of its workers comes from the fact most of Deliveroo’s workers are self-employed or “gig-economy” workers. As such, this means they are not eligible for the usual benefits enjoyed by permanent workers, such as minimum wages, sick leave and holidays.

This reliance on gig economy workers to thrive as a business represents a regulatory risk, says Rupert Krefting, head of corporate finance and stewardship at M&G. “Deliveroo's narrow profit margins could be at risk if it is required to change its rider benefits to catch up with peers”, he points out.

Some of the scepticism in the market is down to a recent ruling by the Supreme Court on employees of Uber. In a blow for the firm, the court ruled that its drivers are indeed employees and not independent contractors.

Another key criticism of the IPO is the proposed dual-class structure that will give Shu 20 votes per share, rather than one. That amounts to 57% of voting rights.

But fund managers can be forgiven for making their excuses to duck out of the IPO. The truth is that even disregarding the voting structure and the regulatory risk, it’s not easy to make an attractive case for investing in Deliveroo right now. Here’s why.

Deliveroo’s two-part business model

Deliveroo has two core parts to its business model. The first is the takeaway business, arguably the best-known part. The company connects consumers to participating restaurants with the click of a button on any mobile phone or tablet. Deliveroo gets a cut from both the restaurant and the consumer for delivering meals. The second part is its grocery delivery business – it has partnered up with a number of big supermarkets including Waitrose, Aldi and Morrisons.

With most of the world in lockdown and nobody really being able to dine out, it is obvious why Deliveroo’s revenues and transaction numbers have soared in recent months, while the public’s reluctance to go to supermarkets has also been a boon to its grocery delivery business. Yet, even although transaction numbers rose 64% in 2020 to £4.1bn, the business is still loss-making overall.

The bottom line is that fund managers probably steered clear of the IPO because of Deliveroo’s unappealing business model rather than social and governance concerns. The company’s shares looked expensive even after the cut to its valuation. It looks as though those who avoided it will be patting themselves on the back this morning.

from Moneyweek RSS Feed https://moneyweek.com/investments/stockmarkets/uk-stockmarkets/603028/deliveroo-has-hit-the-market-but-its-not-getting
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EURGBP Slide Deepens As UK Data Improves

GDP Better Than First Thought The latest UK economic data released today offered some further encouragement for GBP bulls. Following the record-breaking economic slump recorded over early 2020, during the height of the pandemic, the UK economy bounced back quicker than expected into the latter end.The data released from the ONS today showed that the UK economy rose by 16.9% and 1.3% respectively, marking an upward revision from the original data given for both quarters. While GDP was still negative on the year as a whole, at -9.8% the total reading was again a little better than the originally recorded -9.9% reading.Trade Deficit Widened Further The economic hit suffered by the UK over the course of the pandemic has been among the worst suffered by countries in the OECD with only Spain and Argentina taking a bigger hit. According to the ONS, the UK also saw its trade deficit widening to £26.3 billion in Q4, almost double the widening seen in Q3.UK Data continuing to Improve This latest batch of data follows the recent trend of UK data improving, offering hope for the continued recovery in the UK. This week, the UK lockdown laws eased again with the PM allowing for groups of six to meet outdoors. This comes ahead of the highly anticipated April 12th date when pubs and restaurants will be allowed to serve customers al-fresco, along with the return of non-essential retail, gyms ad hair and beauty salons among others.Vaccination Momentum Growing The current mood of optimism is being supported by the UK vaccination drive which has seen over 30 million people receiving their first dose of the vaccine. The progress made here has been credited for slashing transmission rates and bringing the number of new infections down as the government continues to move further down the age groups, now vaccinating the under 50s.Lockdown To End On June 21st If the UK is able to continue along the currently scheduled path to re-opening, the UK is due to remove the legal obligation to social distance as of June 21st, marking a full reopening of the economy. With infection rates and the death toll dwindling, the government has reassured the UK that it intends to press ahead with the current milestones and sees no reason for delay. While the current momentum in the vaccination push remains, sentiment is likely to stay bullish for the UK, particularly when compared with the EU which is suffering from a much slower and more disrupted vaccination drive and the outbreak of a third wave of the virus which has seen many countries extending, or returning to, lockdown.Technical Views EURGBPThe sell-off in EURGBP is continuing this week with price probing below the .8544 level. While below here the .8274 level is the next downside target for bears. This is a key long-term level and a break of this region will be a firm, bearish development. To the topside, bulls would need to see a break back above the .8861 region to alleviate near term bearishness.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Market Update – March 31

Market News Today – Treasuries are closing the quarter pretty much as they began, with the belly and long end of the market losing ground. The improving outlooks on growth, fostering a hefty reflation trade, have been boosting yields. The market has also been pricing in inflationary pressures. The 10-year was 1.7 bps cheaper at 1.72%, though rates were off early highs of 1.774% and 1.433%, respectively on short covering and positioning into month- and quarter-end.

Currently they are posting fractional gains as markets await more details on stimulus from US President Biden who is set to speak on infrastructure today. Elsewhere the details on the fallout from Archegos’ collapse weighed on sentiment overnight and after European markets closed broadly higher yesterday, we are likely to see a more cautious tone, ahead of key data.

In FX markets the Yen weakened and USDJPY lifted to 110.85, although the Dollar strengthened against most other currencies, with USDIndex hitting 93.45. AUD and NZD steadied at March lows. The EUR rebounded on EU open at 1.1725 but remains off 1.1800. Cable dropped to 1.3755 (200-hour SMA). Oil prices keep supported on expectations OPEC+ will keep lid on output, above 50-dMA for 4th day. Gold remains low ate 1,676.

Today – Data releases today includes German jobless numbers and preliminary Eurozone inflation data. The former is likely to show a decline in the sa jobless reading, as parts of the economy re-opened, while the latter is seen jumping sharply higher on the back of base effects, although the headline should remain firmly below the ECB’s implicit target of 2%. The final reading for UK Q4 GDP numbers, US ADP and President Biden are also due.

Biggest (FX) Mover @ (07:30 GMT) CADJPY (+0.54%) The asset prices spiked at 87.86 reaching R2 Faster, extending 6 day rally and recovering nearly all March losses. Fast MAs remain are flattened for now, RSI turning lower below 70 however MACD histogram & signal line are bullishly crossed. These suggest near term consolidation or even pullback with overall outlook holding positive. H1 ATR 0.126, Daily ATR 0.65.

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Andria Pichidi

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Daily Market Outlook, March 31, 2021

Daily Market Outlook, March 31, 2021 Asian equity markets are mostly down this morning following small falls on Wall Street yesterday. That is despite generally encouraging data releases and comments from US Federal Reserve policymakers pointing to strong economic growth ahead. Australian building approvals surged 21.6% in February. Meanwhile, in China March PMIs beat expectations as the manufacturing PMI rose to 51.9 from 50.6 in February and the non-manufacturing PMI surged to 56.3 from 51.4.Today’s updated Q4 UK GDP data showed an unexpected upward revision to quarterly growth to 1.3% from the previous estimate of 1.0%. Consumer spending growth was revised down sharply and now shows a big fall of 1.7% on the quarter but both investment spending and exports were revised up. The report also provided some interesting information about the potential speed of the economy’s rebound. Of particular note was the household savings rate which reached a record high of 16.3% for the whole of 2020 up from 6.8% in 2019. Much of this rise is likely to have been ‘forced’ savings as restrictions curbed spending opportunities and so may be unwound later this year leading to a sharp rebound in consumer spending.Today’s Eurozone CPI for March is expected to post a sharp increase in annual headline inflation. Already released data for Spain and Germany both saw big gains and for the Eurozone as a whole expect annual inflation to climb to 1.5% from February in March. That would still leave it below the European Central Bank’s target. Moreover, the rise really only reflects the impact of higher energy prices as the ‘core’ rate is expected to be unchanged at 1.1%. Consequently, the ECB will probably regard the move as temporary and so it will have little impact on the outlook for monetary policy.US President Biden is scheduled to speak about his plans for fiscal policy. The new administration has already steered a fiscal stimulus package though Congress, which is expected to provide a big boost to this year’s economic growth. Now he is turning to the longer run picture with proposals for a very big increase in infrastructure spending partially paid for by rises in taxes on business and higher income individuals. The proposals could further raise US growth expectations but markets may also worry about a risk that this may fuel inflationary pressures.Today’s March US ADP private sector employment release will as always be seen as a gauge of the official employment data to be released on Friday. A big rise in February was viewed as confirmation that US growth is accelerating and an even bigger increase is expected for March.CitiFX Quant Month End FlowsWe are publishing this unscheduled update of month-end FX hedge rebalancing flows because the signal has changed to a moderate USD sell.· Based on 24 March asset index closes we had previously estimated roughly balanced USD rebalancing needs. The MSCI US equity index has gained 2.12% since then, out-performing most other major markets. This has tilted the estimated net USD rebalancing flow towards a sell as foreign investors need to hedge gains in US equities. The strength of this month’s signal is below the historical norm, measuring 0.4 standard deviations on average.· A combination of strong Japanese asset performance and our assumption of low hedge ratios employed by Japanese investors gives a sell-signal for JPY, almost entirely driven by foreigners’ needs to hedge gains in Japanese assets.· The discrepancy between the JPY sell and buy-signals for other currencies suggests that EURJPY, GBPJPY and other JPY crosses may also move higher ahead of this month-end.· There are no major data releases scheduled ahead of the month-end fix.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby)Larger Option PipelineEUR/USD: Mar31 $1.1770-75(E1.0bln), $1.1800(E1.2bln), $1.1850(E1.2bln-EUR puts), $1.1900(E1.8bln), $1.1920-25(E1.7bln), $1.1945-56(E1.3bln), $1.2000(E1.0bln); Apr01 $1.1850(E1.1bln-EUR puts)USD/JPY: Apr01 Y106.80-85($1.6bln-USD puts)GBP/USD: Mar31 $1.3800(Gbp921mln-GBP puts)EUR/GBP: Mar31 Gbp0.8515-25(E925mln-EUR puts), Gbp0.8540-50(E1.0bln-EUR puts), Gbp0.8600(E1.26bln)AUD/USD: Mar30 $0.7960(A$1.1bln); Mar31 $0.7500(A$1.3bln), $0.7680-00(A$1.6bln), $0.7750-60(A$1.8bln), $0.7770-80(A$1.3bln), $0.7790-0.7800(A$1.1bln)USD/CAD: Apr01 C$1.2450($1.5bln), C$1.2600-10($1.25bln-USD puts), C$1.2660-75($1.2bln)USD/CNY: Apr02 Cny6.58($1.2bln)USD/TRY: Apr06 Try6.60($916mln)Technical & Trade ViewsEURUSD Bias: Bullish above 1.1850 bearish belowEURUSD From a technical and trading perspective, the failure to recapture 1.20 on the upside leaves the 1.1830 lows exposed, through here bears will press for a test of the yearly pivot at 1.1720. UPDATE interim downside objective achieved anticipate profit taking to retest of pivotal 1.1760 from below as this contains corrective upside bears will focus on a 1.16 test. A close through 1.18 would be a bullish developmentFlow reports suggest light offers through the 1.1800 area with weak stops on a move through the 1.1820 area with limit with light offers then running through the 1.1840-60 area before stronger offers start to appear on a test through the 1.1880 level and stronger through the 1.1900 area. Downside bids into the 1.1740-50 area and then increasing on a dip through the 1.1720-1.1680 level with congestion through to the 1.1600 area.GBPUSD Bias: Bullish above 1.3750 bearish belowGBPUSD From a technical and trading perspective, the loss of 1.3750 is a significant development opening a move to test a corrective equality objective 1.3550, only a close back through 1.39 would suggest the correction lower is complete.Flow reports suggest downside congestion around the 1.3660-40 area with stronger bids on any push towards the 1.3600 level and weak stops likely on a dip through opening to a deeper move, Topside offers through light through to the 1.3800 level with congestion through to the 1.3850 area before opening up to light offers and weak stops through the 1.3900 level and then stronger congestion.USDJPY Bias: Bullish above 107.30 targeting 109.85USDJPY From a technical and trading perspective, as 108.30 continues to attract demand bulls will target a test of pivotal 109.85 ahead of the yearly R1 pivot at 110. UPDATE...upside objective achieved look for any initial foray through 110 to prompt a profit taking pullback to retest bids to 108.50...UPDATE upside extension through 110.50 may prove exhaustive opening a profit taking pullback to test demand at 110.Flow reports suggest topside light congestion through to the 111.80 level before stronger offers are likely matching the highs from the beginning of the previous two years at the same period of time, a break of the 112.30 area is likely to see strong stops appearing and the market opening for further push beyond the last couple of years highs. Before running through to the 112.50 area and another set of stronger offers appearing continuing through to the 112.80 level and likely continue seeing strong offers, downside bids light back through the 110 level and likely to continue to 109.80 with weak stops likely through the level and weak through to the 109.00 areaAUDUSD Bias: Bullish above .7560 bullish targeting .8200AUDUSD From a technical and trading perspective, as .7820 contains upside attempts there is potential for a head & shoulders pattern to develop, a loss of pivotal .7560 would open a move to test trend support at .7400 nextFlow reports suggest stronger offers through to the 0.7840-60 area and then increasing offers onwards through 0.7900, with the offers likely to continue through to the 0.7950 area and likely increasing resistance through to the 0.8000 levels, downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 areaDisclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Dollar Edges Lower; Trend Points Higher as U.S. Economy Recovers

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Dollar Up, Reaches Fresh One-Year High Against Yen as U.S. Economic Recovery Hopes

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Tuesday, March 30, 2021

Dollar Eases From 4-Month Highs as Yield Spike Loses Steam

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I wish I knew what a margin call was, but I’m too embarrassed to ask

SEE MORE A big fund just blew up, rattling markets. What does that mean for your money?

When investors buy shares or other financial assets, they can borrow money with the aim of boosting their returns. However, if things don’t go their way, they may face a “margin call”, and be forced to sell their holdings for a large loss.

Before we explain what a margin call is, we need to look at why someone might borrow money to invest in the first place. The easiest way is to compare it with using a mortgage to buy a flat.

Say you buy a flat for £100,000. You put down a 10% deposit – £10,000 – and borrow the other £90,000 from the bank. A year later, house prices have gone up. You sell the flat for £110,000. The price of the flat has gone up by 10%. But you have made a 100% profit. How? Once you repay the £90,000 to the bank, you are left with £20,000. You only put in £10,000 of your own capital. So you’ve doubled your money.

Of course, it cuts both ways. If house prices had fallen by 10% – heaven forbid! – the flat would have been worth just £90,000. All of the sale proceeds would have gone to the bank, and you’d have lost your original £10,000 – a 100% loss.

So borrowed money amplifies movements in the underlying asset price. This is why it’s known as “leverage” or “gearing”.

When an investor borrows to bet on shares, they also put down a deposit. In this case, it’s known as “margin”. The “margin” is there to protect the banks who lend the money.

A “margin call” happens when the margin available to cover any losses falls below a certain level. At that point, the banks demand the investor puts up more “margin” in the form of cash or other collateral. If they fail to do so, the banks may have to sell their holdings to reduce their own risk.

Day traders and spread betters often get margin calls. But it also happens to institutional investors, such as hedge funds. The risk with such margin calls is that if one heavily leveraged seller is forced to sell their shares, this might trigger margin calls for other investors, resulting in a domino effect.

This is why central banks have been known to step in when “systemically important” institutions have suffered margin calls in the past.

To find out more, subscribe to MoneyWeek magazine.

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Time Media Shares Rally Again?

ViacomCBS Inc. is an American diversified multinational mass media conglomerate that was formed through the 4 December 2019 merger of the second incarnation of CBS Corporation and the second incarnation of Viacom. Shares of this media company have taken a deep hit, after the reports by Bloomberg News, that ViacomCBS and Discovery are part of an unprecedented $35 billion block trades, which includes Chinese companies as well as US media conglomerates. In general, the news over the weekend of massive (about $30 bln) block trade sales by Archegos Capital last Friday due to margin calls continue to weigh on sentiment.

The ViacomCBS Inc. share price climb ended and hit bottom through Monday, after two big bloc trades linked to the forced liquidation of Archegos Capital Management sent ViacomCBS shares down from a record peak on March 22 to $45.01 Monday. Shares fell for five days in a row, by 55% overall. With the sell-off, ViacomCBS’ valuation has returned to its average level after skyrocketing earlier this year. The price-to-earnings ratio for the stock was around 10.8 on Monday, down from 23.4 in mid-March. (source: Bloomberg)

As a competitor to the streaming industry leader Netflix Inc., Amazon Prime and Walt Disney Co. ViacomCBS Inc’s move is quite heavy and its share value is considered too high. But the decline this time may be an opportunity for investors to buy back the share price that has fallen by about 55%.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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Turkish Lira Pares Drop as Central Bank Chief Vows Tight Stance

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Reminder! EURO Alert

Rising inflation remains an important determinant of market’s reaction this year, as rising yields continued to challenge lofty equity market valuations, especially in the technology sector, a topic which we have elaborated upon in the past.

Of critical immediate importance though is as we stated last week are the European markets and their variation of US market. So far today, European yields actually eased lower a bit over the month, thanks to ECB assurances and fresh pandemic restrictions that dampened recovery optimism. However, in US we have seen rising mid- to longer-dated Treasury yields, with the 10-year note yield rising over 5 bp from yesterday in testing the 1.770% level for the first time since January 2020.

That said, the US dollar which is concomitant with a vault higher Treasury yields, has continued to ascend, and posted a near 5-month high by the measure of the narrow trade-weighted USDIndex. At the same time, yield differentials have widened more in the US dollar’s favour, with the 10-year T-note over Bund spread, for instance, stretching out to new 14-month highs over 203 bp. A marked yield differential widening has also been seen in the case of the T-note versus JGB yield, while the cases for US versus UK and Australian 10-year yields have seen much less, if any, widening. This yield dynamic has been playing out against a backdrop of overall positive risk appetite.

Hence this was foreseen since last week, as we stated that the end of month and end of quarter flows could recommence fully the reflation trade, which is what actually happening right now. The bond yields are sharply higher on a combination of the reflation trade and climbing expectations on the recovery thanks to ongoing good news on vaccines, the potential for another $4 tln US stimulus package, some $3 tln in taxes, and supply, not to mention the ultra-accommodative posture of core central banks and the Fed’s benign neglect over rising rates.

Hence we have seen a bullish US dollar, with all major currencies under pressure. However attention is mainly on EURUSD, which as foreseen, the break of 1.1800 strengthened the bearish pressure drifting the asset below this key level to 1.1728 lows, what is now the 7th down day out of the last 9 trading days, as along with fundamentals which for now are not in the favour of the Eurozone, there might had been large stops below 1.1800 causing further depreciation to the asset. This is also the fifth out of the last six week’s of descent, and the third consecutive month that the EURUSD has headed lower. On the year so far, the US dollar is registering as the second strongest of the main currencies.

The data released today such as Eurozone ESI business confidence index which rose above pre-pandemic levels and German state inflation higher than expected, had little bearing on the EURO. Even though this supports the bullish outlook on growth and rising price pressures the yields differentials and the global rollout of Covid vaccines remain the main factors weighing on EURO and boosting US Dollar.

The US economy is widely seen outpacing the Eurozone and other peers this year, thanks in large part to the massive fiscal stimulus along with the more advanced vaccination rollout in the US, which is facilitating societal reopening. Eurozone interest rates are near the most negative in the world (Swiss rates being the exception), and there is little prospect for the ECB to tighten policy on the horizon, contrasting to the debate surrounding the Fed, and the possibility it may be forced to tighten sooner than expected given the regime change in US economic policy.

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Andria Pichidi

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USD Reaps the Rewards of Vaccination in the US

Marine traffic resumed in Suez Canal reducing uncertainty in the markets, with the USD firming its position while long-dated Treasuries sell-off gained momentum ahead of Biden's presentation of infrastructure spending plan. Oil clang to recent gains ahead of the OPEC meeting.On Thursday, OPEC will decide whether to extend current output cuts after May 1. At the last meeting, OPEC took it by surprise leaving productions cuts unchanged, which, however, played a cruel joke: the market regarded this as a signal of concern about demand outlook. Prices jumped up, but unwound gains quickly, ironically, OPEC concerns about demand were later justified – the third wave of covid came in Europe, lockdowns were extended and eroding demand forecasts.After OPEC’s decision at the last meeting, expectations of aggressive lifting of restrictions were shifted to May. After oil prices tumbled in March and covid situation worsened, this outcome became much less certain and expectation surfaced that OPEC may again decide to extend output cuts in May. By the way, expectations of a dovish OPEC move could be the key driver in recent price rebound. In my opinion, the chances of such an outcome are minimal, since in its last monthly report, OPEC revised its forecasts for demand growth in the third and fourth quarters upward, the situation with covid Europe is painful for the market, but not so critical as to prolong the restrictions. US production is recovering slowly, with low temperatures in late February further pushing the recovery back, as evidenced by drilling activity and the dynamics of commercial oil reserves:The number of active drilling rigs in the United States is less than half of the same period last year.The chances of extension of USD corrective rally appear to be rising as metrics of consumer mobility indicate that the US is beginning to outpace the EU and the UK in recovery. For example, here is the level of consumer visits to retail outlets compared to the pre-crisis level by country. The United States began to stand out noticeably in early March:Other mobility metrics, such as restaurant visits and air travel, also show that the US is removing restrictions faster. Improved economic prospects relative to other countries justify investment flows, which in turn affect foreign exchange flows.Over the next few weeks, there is a risk that USD index as part of its rebound trend, will touch 94 points, the highest level since November in 2020:Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usd-reaps-the-rewards-of-vaccination-in-the-us"
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What does Joe Biden’s $3trn infrastructure plan mean for your money?

One of the biggest debates in markets right now is over precisely what effect America’s $1.9trn coronavirus stimulus package will have on growth, inflation and debt levels.

Yet US president Joe Biden is already looking to the next level. This week – tomorrow, in fact – he plans to unveil a $3trn “Build Back Better” proposal, which includes his flagship infrastructure vision and much more. But what exactly does it involve? And what might it mean for your money?

The plan will be split into two legislative proposals, White House Secretary Jen Psaki said on Sunday. The first part of the plan – the part that’s due to be officially unveiled on Wednesday – will deal with Biden’s infrastructure and investment vision. This will include investments in clean energy, manufacturing, 5G mobile technology – all the “on-trend” sectors.

Meanwhile, the second part of the plan – to be announced in a few weeks – is being touted as the “social infrastructure” section. This includes proposals for free community college and universal pre-kindergarten, according to the New York Times, as well as moves to increase the participation of women in the workforce.

The political logic behind the split is pretty self-explanatory. Prioritising the “roads and bridges proposal” (as it’s been nicknamed), will make it easier to get Republican backing. Given the razor slim-majority Democrats hold in the Senate, that matters. Combined, the two proposals add up to more than $3trn more in public spending.

At least $1trn will be earmarked for building and repairing physical infrastructure with a focus on climate change, says the New York Times. Biden’s election campaign pledges also emphasised a shift towards renewable energy and electric vehicles.

The proposals are likely to be funded by tax rises

The idea of investing in improving and upgrading America’s infrastructure (physical infrastructure, at least) is one of the rare things that both Democrats and Republicans agree on. However, the sticking point is also clear: how will it be paid for?

During the election campaign, Biden proposed some tax rises to at least partly fund these proposals. And both White House Secretary Jen Psaki and Treasury Secretary Janet Yellen reiterated this view last week. But what sort of taxes are we talking about?

Biden campaigned for raising corporate taxes from the country’s current level of 21% (corporation tax was lowered under Donald Trump) to 28%. Other measures include increasing the top tax rate for the richest income bracket from 37% to 39.6% as well as increasing capital gains taxes on millionaires. He has, however, also pledged that households bringing in less than $400,000 a year will not be paying more in any federal taxes being pencilled by the White House. Whether or not that turns out to be true is another matter.

Officials are also looking at where cuts could be made in other areas. One idea is to have Medicare, America’s national health insurance programme, negotiate the cost of prescription drugs direct with pharmaceutical firms. Officials are also looking at whether to extend some 2017 tax breaks on business investment – due to expire soon – to woo industry.

Will the plan be approved?

Of course, we’ve had American “infrastructure weeks” coming out of our ears – Trump notably kept talking about it but it never came to anything. So will this make it any further than the drawing board?

Getting bipartisan approval for the plan certainly won’t be easy. Republicans strongly oppose tax rises, suggests Aric Newhouse, the National Association of Manufacturers’ senior vice president for policy and government relations. “That’s the kind of thing that can just wreck the competitiveness in a country,” he says. And Newhouse is not alone. Senate Republican leader Mitch McConnell has described the plan as a “Trojan horse” for huge tax rises.

However, the Democrats do have a majority – it might be a slim one, but the proposals could potentially be approved without Republican support, just as the $1.9trn rescue plan was. The latter was funded by federal borrowing in a process known as “budget reconciliation”, which is a way of garnering fast-track approval for US laws. Current Senate rules usually require most laws to receive a majority of at least 60 votes, meaning any law being passed today would usually need the votes of all Democrats and 10 Republicans.

But the Congressional Budget Act of 1974 paves the way for a simple majority to pass certain types of legislation. Given the nature of the pandemic, the Biden administration passed the previous coronavirus package without the support of any Republicans as Democrats argued that most Americans were more concerned about getting stimulus relief than focusing on the process itself, with covid rippling across the country. That said, Democrats reportedly want Republicans to be more involved this time.

What the proposal means for your portfolio

It may be a little too early to speculate on the expected effect of the proposals, given they are yet to be announced.

But the proposals again bring inflation to the top of investors’ minds. Economists and market participants are already arguing over whether or not the previous coronavirus package is set to overheat the economy. Economist Larry Summers, who served as US treasury secretary under the Clinton administration and is hardly an ardent conservative, described the stimulus package is the “the least responsible macroeconomic package we’ve had in the last 40 years.”

So if the new $3trn package (or even part of it) makes much progress, the US bond market seems likely to come under further pressure, as expectations of higher inflation and a stronger economic rebound from the pandemic grow even stronger. Even if it is partly paid by taxes (which would offset the inflationary effect by taking money out of the economy), it’s unlikely that the entire bill could be covered that way.

That doesn’t mean the Federal Reserve will feel the need to act. The Fed has committed to keeping interest rates near zero until at least 2024, and to continue its current quantitative easing programme until maximum employment is achieved and inflation rises above 2% persistently and on average. But the central bank might need to act more aggressively if markets really start to believe that its benign view of inflation is wrong.

As for the effect on stocks, higher corporation taxes of up to 28% would dent corporate earnings by 9% in 2022, says David Kostin, chief US equity strategist at Goldman Sachs. That said, stronger growth, driven by the infrastructure spending, could partly offset this, reckons UBS’ head of equities Americas, David Lefkowitz.

But as Goldman Sachs points out, the “growth” stocks that have been driving the bull market since 2009 are more vulnerable to a rise in both corporate and taxes on foreign income compared to cyclical stocks. They are also more likely to struggle with inflation.

The companies set to benefit the most from Biden’s infrastructure plans will be industrials and material firms, says Bank of America – all cyclical stocks. Financial stocks may also benefit as rising bond yields improve the profitability of banks.

In all, if the infrastructure deal passes, the message to investors is more of the same: the “Great Rotation” from growth and tech towards cyclical, value stocks such as energy, materials, industrial and financials, will simply continue.

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UK/US Trade Tensions Escalate on Fresh Tariff threats

Trade War Looming? With the ending of Trump’s term as US president, there was a sincere hope that the world would enter a phase of more harmonious relations. Following the destructive nationalism and protectionism that Trump displayed, picking fights with China, Europe, Japan and just about any other country he could, the bar was set very low for incoming democrat president Biden to fare better. However, in a cruel twist of fate it seems we are once again back to the prospect of trade wars.US Threatening Fresh Tariffs On UK The Biden administration has threatened the UK with a fresh set of 25% tariffs casting fresh doubt over the likelihood of the two nations agreeing a trade deal. The US has threatened to apply the levies to a wide range of goods following the UK applying a similar tax to US tech firms. The UK Digital Services tax which comes into force on Thursday (April 1st) will apply a 2% tax on the revenues of search engines, social media platforms and online market places which operate in the UK, or have UK users. However, during talks between the UK and the US regarding the tax change, the UK was keen to stress that the move was seen as procedural rather than an escalation of trade policy.Response To UK Tech Tax Despite the UK’s justification, it seems the US is not happy with the tax and will now seek to recover the lost capital through its own taxes which should raise around $325 million annually, the amount the US judges it will lose through the Digital Services tax. A spokesperson for the UK government said that it was designed to “make sure tech firms pay their fair share of tax”. In response to news of the threatened counter-measures, which were first initiated under Trump but have been continued by the Biden administration, the spokesperson said: "Should the US proceed to implement these measures, we would consider all options to defend UK interests and industry." Traders now await the next move as the US is due to consult on the proposed tariffs over the next few weeks.Technical Views GBPUSDGBPUSD has broken below the rising channel from last year with a retest of the underside of the channel currently holding as resistance. While the channel-break holds, the focus is on a further correction lower towards the 1.3516 level next. Bulls will need to see price back above the 1.3989 level quickly to alleviate downside pressure.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Nvidia: a bet on the future of technology

Most people will have missed the news that the world is struggling with a major microchip shortage. Big deal, you might think, but with more of the devices we use daily needing them, problems start to mount. No chips means no products, with a slowdown in the manufacture of everything from mobile phones and games consoles to televisions and laptops. Even cars – increasingly smartphones on wheels – have seen production drop.

Lockdowns have triggered the shortages. Sharp slowdowns in industries such as automobiles, for example, put the brakes on car-chip sales. As orders tanked, manufacturers switched to making more sophisticated chips, for which demand soared more than expected on the back of all that gadgetry for working and schooling at home, and they couldn’t keep up. In the meantime the car industry – and its need for chips – rebounded faster than anticipated and yet more demand went unmatched.

The obvious winners are the chipmakers, of course, as they race to keep up with orders. The MVIS US Listed Semiconductor 25 index, which tracks the global leaders, has gained 10% in 2021, almost twice overall global equities’ return. However, its bounce masks high short-term volatility and mixed individual showings: semis were up by 15% for the year in mid-February but then down by 3% in early March.

Neglecting the big picture

These sharp divergences from different microchip stocks are creating opportunities. Key among them is graphics-chip specialist Nvidia (Nasdaq: NVDA). The former stockmarket darling has moved sideways for a year.

Investors have focused on the very short term and lost sight of the broader picture. I’ve consistently cited Nvidia’s long-term strengths, last highlighting it here 12 months ago at $271, just before it doubled. I’m still upbeat.

Investors are allowing their judgement to be swayed. Firstly, the chip-demand trend is making them turn their noses up at any stock that doesn’t deliver massive short-term, quarter-on-quarter profit growth, and Nvidia hasn’t owing to one-off factors. But it’s delivering strong year-on-year numbers (annual sales are up by more than 50%), and this is what I’m buying into.

Secondly, broader market fears about inflation are cooling sentiment towards big technology stocks. Yet this overlooks the fact that expectations are for Nvidia to grow earnings by anywhere between 32% and 80% next year and by double digits again in each of the following two years. Nvidia is not an overvalued tech stock – it’s relatively cheap and has been getting cheaper.

Strong long-term demand

More broadly, everyone is becoming a videogamer and every mobile phone is becoming a games platform. There will be a never-ending cycle of billions of mobile phones (just think China) needing chips from Nvidia: graphics, image rendering and the creation of captivating, life-like worlds are the future of our interaction with technology.

It’s this complexity in graphics that also means Nvidia’s processors can generate the necessary computing power crucial for all the big trends that are going to change the world over decades in transportation, robotics, smart cities, healthcare, logistics and retailing. All of this requires huge power, which Nvidia offers. Its chips are also suitable for mining bitcoin.

All of this is huge and Nvidia will be too. It works at the cutting-edge of artificial intelligence, cloud processing and data storage, the fundamental elements of the huge transformational revolution in how we will soon live. It cannot happen without Nvidia.

A 44-fold return in 22 years – and Nvidia is just getting started

Nvidia share price chart

It’s still typical to think of technology companies as new, forgetting that some have been around for quite some time. Nvidia, for example, was formed in 1993 and floated on the stockmarket six years later at $12, giving early investors a 44-fold return – and that’s before dividends.

Built on graphics processing, an area in which it has repeatedly revolutionised technology, Nvidia’s chips are now also fuelling high-performance computing. They are used in artificial intelligence, machine learning and virtual reality, all of which are key to how technologies will develop to serve and interact with us. The advance of technology is reliant on Nvidia as its chips are key to supporting innovation.

The chips are also used heavily in smartphones, the devices that everyone will have and use to connect to the virtual world in a never-ending cycle of upgrading and replacing.

Last year Nvidia announced that it would buy British chip designer Arm from the Japanese technology conglomerate and investor Softbank for $40bn. The deal is strategically sound as Arm chips are used heavily in smartphones. The tie-up is not yet concluded, however, and competition rulings are expected.

Analysts are forecasting a bright future with very strong earnings growth. The broader outlook for technology, together with Nvidia’s role in it, suggest further upside. The sideways move in the share price over recent months, in which it has lagged other microchip stocks, is an opportunity for investors keen to back the cutting-edge of technology over the long term.

• Stephen Connolly heads a family investment office, and has worked in investment banking and asset management for over 25 years (sc@plainmoney.co.uk)

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