Bitcoin shoots for the moon

But is this time any different?

Chart of the Day

It’s impossible to ignore the continued strong rise in bitcoin, with few selling but seemingly everyone want to buy, leading to another 7.2% rise yesterday taking it to near $23,000 - though it could well be a far different number by the time you read this. We have no idea where this is going, but the growing number of institutions that appear to be piling into bitcoin is one reason why “this time could be different”, at least compared to the last spike in late 2017 which was mainly about retail buyers. Then again, history shows that anyone who says “this time is different” should prepare to be humbled.

Macro

It was another mixed week from the US claims data. Initial claims deteriorated further, but continued claims dropped back.

US building permits jumped in November and bode well for housing starts.

The Bank of England was one of several central banks meeting yesterday. While it left interest rates unchanged at 0.1%, Overnight Index Swaps for the next 12 months have turned negative, as traders price in a higher likelihood of the BoE imposing negative interest rates.

Elsewhere, the Norges Bank left rates at 0%, and in Mexico rates were left at 4%. Among the major economies, it’s obviously Turkey that stands out as having the highest rate, as it continues to keep rates high to try to combat high credit growth and reduce pressure on the lira.

That said, even its policy rate of over 14% amounts to just 1% or so in inflation-adjusted terms, much like in Mexico. China’s rate here is being pushed up by the fact that consumer price inflation has slumped by over 2%-points in recent months to -0.5%, but that is mainly due to food prices.

Markets

The USD continues to sink as investors position for more growth-sensitive opportunities elsewhere, with the DXY falling by a further 0.7% to its lowest since early 2018.

The sharp fall in the dollar has helped lift gold, which along with silver has been on a strong run in the past week.

Investors’ optimism is clear in the Russel 2000, which once again surpassed the S&P 500 yesterday.

Both indices have been supported by improved prospects of a fiscal deal, which led investors to push down implied equity market volatility again yesterday, with the VIX dropping below 22. Despite increased government borrowing, the MOVE has also declined, perhaps because the touted deal is much smaller than many initially expected.

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