The Weekly : 2021 #1

January Effect out in full force as Bitcoin reaches $40k

Europe back in lockdown and economic cracks begin to appear, but making hay while the sun shines remains order of the day

January 9, 2021 / 1 min read

January Effect out in full force as Bitcoin reaches $40k

Markets rallied strongly last week with the S&P and FTSE seeing rises of 4.5% and 6.5% respectively with January Effect appearing to be out in force.

Oil rose too following Saudi Arabia’s pledge to production cuts, as well as general optimism within equity markets.

Gold on the other hand fell more than 4% on Friday as both the dollar and U.S government bond yields showed some strength. Should they continue to rise, the current positive sentiment could quickly reverse, especially if the post-covid optimistic projections for economic growth (aka the reflation trade) which everyone is betting on so heavily doesn’t materialise.

The most sensational headline last week was Bitcoin hitting $40k which few could have for-seen. It rose over 20% last week, and is now up 100% since the beginning of December. Having gone full parabolic it’s due a significant correction, but how many times have we said that. It’s seen a sharp pull back over the last 12 hours so it could well be beginning.

Further lockdowns

Many European economies are back in lockdown after a significant acceleration of infections and deaths due to Covid-19. Despite the concerning statistics, markets appear undeterred for now as rollout of the various vaccines gathers pace.

On a more positive note, despite the headline-making numbers the fatality rate has continues to fall due to improved treatments, a changing demographic (more younger people becoming infected and less over 60s), and increased adoption of masks is seeing those infected receiving lower viral doses.

The real economic impact of Covid-19 remains unclear but significant numbers of corporate insolvencies are anticipated to follow as emergency government support is withdrawn.

January might have started strongly but whether it can sustain it further into the spring seems questionable. Interesting times.