Crypto crash deepens, stocks slip
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[May 19, 2021] By
Tom Arnold
LONDON (Reuters) - Global stocks slipped
and cryptocurrencies sank deeper on Wednesday as a threat of unwanted
inflation had investors shy away from assets seen as vulnerable to any
removal of monetary stimulus.
Digital coins were also under pressure from new Chinese restrictions on
financial institutions providing services related to cryptocurrency
transactions.
But as the U.S. dollar edged away from its lowest levels of the year
against its rivals, prices of gold, viewed as a hedge against inflation,
reversed their recent course to fall from near a four-month peak.
"The bitcoin flow picture continues to deteriorate and is pointing to
continued retrenchment by institutional investors," JPMorgan analysts
including Nikolaos Panigirtzoglou wrote in a research note.
Institutional investors appeared to be shifting away from the
cryptocurrency and back into traditional gold, reversing a trend of the
previous two quarters, they added.
The cautious sentiment pervaded in equity markets as focus was locked on
the U.S. Federal Reserve's release later on Wednesday of the minutes of
its April meeting, which will be watched for any indication about
monetary policy in the United States.
Europe's STOXX 600 index remained 1.3% down, on course for its biggest
drop in more than a week, while MSCI's gauge of stocks across the globe
sank 0.4% lower.
MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.6%,
though Hong Kong and South Korea are closed for holidays. Japan's Nikkei
lost 1.3%.
U.S. S&P futures fell 1% in Europe a day after Wall Street stocks slid
in late Tuesday trade, unable to sustain gains made after bumper
earnings from Walmart and Home Depot.
While demand is recovering fast as many developed countries have made
progress with COVID-19 vaccination, companies are facing obstacles from
shortages of chips, containers, and in the United States, workers too,
stoking worries of higher prices.
Mirroring a move underway in the United States as the global recovery
takes hold, British consumer price inflation more than doubled to 1.5%
in April, data showed on Wednesday.
INVESTORS REMAIN CAUTIOUS
Euro zone inflation picked up the same month, with consumer prices
rising 0.6% month-on-month for a 1.6% year-on-year increase.
Canada inflation data is due later.
In the United States, the Fed has stuck to the narrative that a recent
rise in inflation would be transient and that it therefore should keep
its easy monetary policy settings.
The minutes from April's meeting are expected to repeat that message.
"Inflation remains the biggest theme, whether it is real and whether the
Fed may need to change its policy because of that," said Kazushige Kaida,
head of forex sales at State Street Bank's Tokyo branch. "At the moment,
markets are putting faith, after a fashion, in the Fed's narrative."
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Representations of virtual currency Bitcoin are placed on U.S.
Dollar banknotes in this illustration taken May 26, 2020.
REUTERS/Dado Ruvic/File Photo
Investors remain cautious following an unexpected pickup in U.S. consumer
inflation shown earlier this month.
Any further flare-up could hit assets whose prices have been bolstered by
monetary easing, including cryptocurrencies, which rose sharply over the past
year and are seen by some as exemplifying an excess created by a "wall of money"
from central banks.
Bitcoin extended an earlier slump to fall 13%, to its lowest level since early
February, bringing its loss from a peak of $64,895 hit just over a month ago to
more than 40%. It was last at $37,104.
Ether, the second largest cryptocurrency, shed 28%, and is off more than 42%
from record highs last week. It last changed hands at $2,579.
While cryptocurrencies were bruised by China's fresh ban on their transactions,
they were not alone in facing pressure.
Some commodities that have benefited from reflation trade have also lost steam,
with U.S. lumber futures losing around 20% in the last three sessions.
China will strengthen management from both supply and demand sides to curb
"unreasonable" increases in commodity prices, and prevent the pass-through to
the consumer, the cabinet said.
Oil prices pulled back for a second day on simmering demand concerns as
coronavirus cases in Asia rise and on fears of rising U.S. interest rates, which
could limit economic growth.[O/R]
U.S. crude futures dropped 2.0% to $64.21 per barrel while Brent futures lost
1.9% to $67.44 per barrel.
U.S. Treasuries were relatively calm, with the 10-year yield trading within the
month's ranges.
In Europe, the benchmark German Bund yield climbed to a two-year high as
investors increasingly priced in the possibility of the European Central Bank
slowing its bond-buying. Germany's 10-year bond yield was up 2 bps at -0.089%.
Italy's 10-year yield was up 3 bps at 1.123%, having earlier hit its highest
since September 2020.
In currency markets, the dollar firmed, moving away from its lowest levels of
the year against major currencies.
The euro pulled back from a near three-month high of $1.2244.
The dollar stood at 109.23 yen after four straight sessions of decline.
After gold hit its highest level since late January on Tuesday, it was last down
0.8% at $1,853.16 per ounce.
(Reporting by Tom Arnold in London and Hideyuki Sano in Tokyo; Editing by Sam
Holmes, Toby Chopra, William Maclean)
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