Last week was quite subdued in equity markets as the main indices chalked up modest gains, helped along by better-than-expected corporate earnings and expectations of upcoming US stimulus. The uptrend was underpinned by substantial trading volumes, with a record weekly amount flowing into mutual funds, at close to USD 58 billion, with tech-heavy funds belle of the ball. In Tokyo, the Nikkei exceeded 30000 points for the first time since August 1990.

Investors have seemingly become more hesitant, questioning progress on vaccinations and unnerved by the spread of new variants and lofty equity multiples. But the overriding message is that the market is banking on a strong recovery, powered by monetary and fiscal support – despite the poor economic start to the year.

Some are fearing that indices might fly too close to the sun, but this mood does not seem sufficiently entrenched to halt the wide-ranged speculation, driven by the abundant liquidity. Following the euphoria surrounding shares sold short by hedge funds, cannabis firms were then targeted by amateur traders, convinced that US legislation on marijuana was soon to be relaxed. The share prices of sector companies shot up but then plunged dramatically after Tilray’s CEO said that the legislative amendments could take 12-18 months. Instead it might be worth keeping track of Elon Musk’s tweets, as it seems like the Tesla boss has become the next oracle for investors. Bitcoin has surged to around USD 48,000 after Tesla announced that it would accept it as payment. Bank of New York Mellon and Mastercard have since followed suit.

Last Wednesday, Fed supremo Jerome Powell affirmed that the US labour market was weak, featuring stark disparities by social class and industry. He projected the need for more investment and monetary stimulus to support the economy. Full employment is part of the Fed’s mission statement, but with 10 million employed workers less than in January 2020 and an unemployment rate of 6.3%, this is far from being achieved – especially since millions have simply given up and dropped out of the workforce. The Fed is not worried about inflation. And so long as the job market is struggling, it will be inclined to allow price growth to exceed the 2% target. This means that interest rates are set to remain low for a long time to come, in tandem with a loose monetary policy enshrined in monthly bond buying of USD 120 billion.

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