The Dow Jones soared 460 points, and Bitcoin also soared wildly. Beware of the lie of "dollar shortage" being shattered

The Dow Jones soared 460 points, and Bitcoin also soared wildly. Beware of the lie of "dollar shortage" being shattered

The heavy "boot" has finally landed!

The highly anticipated $1.9 trillion economic rescue plan was voted through by the U.S. House of Representatives on Wednesday and is expected to be submitted to U.S. President Biden for signature on Friday.

Boosted by the positive news, the Dow Jones Industrial Average and the S&P 500 extended their gains during the session, with the Dow Jones Industrial Average rising by more than 550 points at one point.

As one of the three major stock indices in the United States, the Dow Jones Industrial Average hit a record high, while the Nasdaq Composite Index was in correction territory (down 10% from its high), which has not happened in 20 years.

The stimulus plan also strengthened expectations of "flooding the market with money", pushing up the price of Bitcoin, which once returned to the $57,000 mark.

In the past two weeks, the price of Bitcoin has risen by about 25%, approaching its previous record high. Currently, one Bitcoin is equivalent to 360,000 RMB, and the market value of Bitcoin is as high as 68,600 RMB, which is equivalent to the market value of 2.7 Moutai (Moutai's market value at the close of trading on Wednesday was approximately 2.47 trillion RMB).

The rise of Bitcoin has led to a sharp increase in the amount of liquidation in the cryptocurrency market. As of 7 a.m. Beijing time this morning, a total of 100,000 people had their positions liquidated, with a total amount of nearly 5 billion yuan.

The passage of the new stimulus bill means that a new round of money distribution is about to begin. The $1,400 relief checks will be mailed out within a few days, and most Americans will be eligible to receive them.

However, it is worth noting that when the US economic situation improved, many American economic experts warned about the current situation, because such a recovery in a short period of time might lead to inflation.

While receiving government subsidies, many American companies are worried that the Biden administration is likely to raise tax rates on businesses and investors in order to make up for the growing deficit.

More than that, investors are now concerned about whether history will repeat itself.

A Deutsche Bank survey of retail investors showed that 37% of the direct cash from the U.S. government will go into the stock market, with a total amount of about $150 billion. The previous stimulus cash distribution pushed the U.S. stock market to a new high in January.

Then, we are likely to see a repeat of what happened in late December. On the downside, the recent rise in bond yields and the loss of momentum in stocks favored by retail investors have created a more challenging environment for the latter.

In addition to the economic stimulus plan, two other things were settled overnight.

Let’s first talk about the issuance of US 10-year Treasury bonds (the results were not bad, but not good either).

Yields on Treasury maturities were near session lows after a $38 billion 10-year note sale.

The winning bid rate for this auction was 1.523%, 1 basis point higher than the market yield before the bid deadline; the bid multiple was 2.38 (below the average level), and the average level was 2.41.

Regarding the results of the 10-year Treasury bond auction, Bloomberg reported that the result avoided a "disaster" in the market and that market demand was sufficient to ease investors' concerns about a possible decline in demand for Treasury bonds and a rapid rise in interest rates in the near term.

The market also responded positively, with the 10-year U.S. Treasury yield falling 0.8 basis points to 1.524%, marking the second consecutive trading day of decline.

Currently, investors waiting for signals from the bond market have turned their attention to Thursday - today there will be $24 billion in 30-year Treasury bonds issued, which will be the last of three Treasury bonds issued this week. Yesterday's mediocre results of the 10-year bond issuance will make the market face greater obstacles today.

Now let’s talk about the much-anticipated US CPI data, which was the biggest event affecting the market last night.

The U.S. CPI for February increased by 0.4% month-on-month, in line with expectations, and maintained growth for the ninth consecutive month. The year-on-year increase reached 1.7%, the highest increase since February 2020.

After the data was released, U.S. Treasury yields fell, the U.S. dollar fell in response, and gold quickly broke through the resistance level.

Source: Jintou.com

The latest inflation data gives the Federal Reserve some flexibility to implement looser monetary policy. But some analysts say that for gold prices to return to last summer's record high, the U.S. economy needs to see more sustained and higher inflation, which is difficult to achieve because the economy has been devastated by the epidemic.

As we all know, the Federal Reserve is currently obsessed with saving the economy and has injected huge amounts of money into the market, flooding the market with a large amount of US dollars. At present, many economists and market participants have warned that the price of rapid growth may be high inflation or even hyperinflation.

Some warnings suggest that the inflationary situation will shock policymakers, stock and bond investors. Analysts even compare the current situation in the United States to the Weimar Republic in Germany in the 1910s and early 1920s, or the high inflation in the United States in the 1960s and 1970s.

Some people even say that as the U.S. economy reopens and accepts a new round of stimulus measures, it is necessary to "prepare for inflation," as real inflation will sooner or later break out in the United States in 2021.

Currently, as inflation and unemployment are far from the Fed's targets, the Fed can still convince investors that rate hikes can be gradual. But the challenge is that if the US economic recovery exceeds expectations, the market will reassess the path of the Fed's monetary policy, but if the Fed still sticks to its views, it will lead to greater turbulence.

Next, the US dollar may rise.

It should be noted that before this, most investors, including Wall Street, were bearish on the US dollar, but as the US dollar rose strongly for two consecutive months, Wall Street suffered heavy losses from shorting the US dollar. Therefore, the bearish consensus on the US dollar this year is gradually disintegrating.

Source: Jintou.com

Currently, Wall Street is bullish on the U.S. dollar. There are three reasons for this:

• The United States may be the first country to tighten policy;

• Due to rapid vaccination, the U.S. economy will recover ahead of other economies, and economists even expect the U.S. GDP growth rate to reach 6% this year;

• The US Treasury yield still has room to rise, which will drive the dollar to strengthen. (The rise in US Treasury yields is driven by an obviously optimistic economic outlook, and the dollar rebound is supported.)

Next, the US dollar will go through three stages:

• Phase 1: When bullish signs for the dollar just emerge (short positions are closed), the market trend will be consistent with the initial consensus expectations, and the dollar tends to be bullish;

• Phase 2: When more and more people are bullish on the dollar, it’s time to take profits;

• Stage 3: When the bullish trade becomes overcrowded, this is when the market reverses.

Right now, we are going through the first phase mentioned above, where people are buying back dollars (it feels like the dollar’s ​​rally is not going to stop for a while).

HSBC predicts that the US dollar will depreciate moderately in the next six months. However, as the US economy continues to recover and is driven by additional fiscal stimulus, US exceptionalism and expectations of a smaller bond purchase by the Federal Reserve may become more influential by the end of this year, which is expected to drive the US dollar stronger.

If the U.S. dollar strengthens, it will naturally suppress gold in the long run.

From a short-term technical perspective, gold prices are expected to rise to $1,740.00 first.