Monday, April 6, 2020

Bitcoin Shines as Investors Hedge COVID-19 Fallout

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What’s happening: Crypto leader bitcoin recorded gains last week, only to rise again this morning.

What’s happened: With the spread of the coronavirus pandemic, bitcoin had been tracking the broader market downturn. Although there were wild swings, the broader movement was in the downward direction. Fears of a slowdown in the global economy and deep recession in the US had investors scurrying for cash. Even gold and silver seemed to be losing their “safe-haven” status.

Bitcoin finally broke the trend this month, remaining on an uptrend. And the momentum continued today.

Details: Bitcoin is widely considered a hedge against the COVID-19 economic fallout. The digital currency started the month below $6,400 and gradually climbed past $6,800 through last week. Some of the upturn was driven by retail traders buying the dip, amid record-breaking trading volume.

The cryptocurrency remained stable through the weekend, with $6700 being a support and $7,000 a resistance level. Bitcoin broke the resistance level this morning and had gained more than 4% to reach $7,056.93 at 8:40am GMT.

Investors include bitcoin in their portfolio as a hedge against economic uncertainty. And, there hasn’t been a more uncertain time for the global economy than this in modern history. More specifically, bitcoin is a hedge against deflation. A coronavirus-led downturn in the global economy is expected to result in significant deflation, especially with central banks around the globe announcing unprecedented interest rate cuts.

Robert Kiyosaki, author of bestseller “Rich Dad, Poor Dad,” recommended investors to not save the money they receive as their stimulus check, rather to spend it wisely. He recommended buying gold, silver and bitcoin. The view is supported in a tweet by Raoul Pal, former hedge fund manager and co-founder of financial media company, Real Vision.

What to watch: Investors will keep an eye on Consumer Price data from the US and Eurozone. A negative reading indicates deflation, which may boost bitcoin price. Any decline in the US dollar will also be positive for bitcoin.

The Markets Today

     

European stocks will be in focus today, after markets closed lower on Friday on news of a sharp decline in the region’s business activity.

Context: European stocks closed lower in the previous session, as investor concerns of a recession deepened. Fears were fueled by the massive decline in Eurozone’s business activity index in March. A horrifying non-farm payrolls report from the US didn’t help the cause.

Details: Virus-related shutdowns have led to widespread fears of a global recession. Poor economic data and news of over a million coronavirus cases globally fueled these fears, and investors resorted to buying the US dollar and government bonds.

Eurozone final composite PMI dropped sharply to 29.7 for March, from a reading of 51.6 in February. The final services PMI also declined to a record low of 26.4 in March, from February’s 52.6.

Meanwhile, the US reported a massive decline in nonfarm payrolls, with 701,000 job losses in March and its unemployment rate jumping to 4.4%.

The pan European Stoxx 600 index closed lower by 0.97%, while the FTSE 100 fell 1.18%. the French 40 was down 1.57%, while the German 30 declined by 0.47%.

Coronavirus continues to dominate overall market sentiment, with total cases reaching 1,274,900 and the death toll rising to 69,400. Spain overtook Italy in the number of coronavirus cases after reporting 131,600 cases, versus Italy’s 128,900.

What to watch: After the downbeat performance of the European stocks in the previous session, investors are hoping for a rebound today. All eyes are on the ECB to announce actions to support the economy during this crisis. Investors also await construction PMI data from Eurozone and the region’s countries.

Other Markets: US indices closed lower on Friday, with the Dow, S&P 500 and Nasdaq 100 down by 1.69%, 1.51%, and 1.53%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Germany’s factory orders and construction PMI, Italy’s construction PMI, France’s construction PMI, UK’s new car registrations and construction PMI, Spain's consumer confidence, Mexico’s car production and auto exports, Russia’s total vehicle sales and inflation rate, Brazil’s car production and new vehicle registrations as well as the US consumer inflation and total vehicle sales.