Bitcoin surges above $8000 to 10-month high; Stocks look to recover

Summary:

• Bitcoin extends on recent rally; Ripple jumps 25%

• Are trade wars a catalyst for Crypto surge?

• US stocks recover after recent declines

• DE30: Volkswagen resumes preparations for truck unit IPO

• UK Labour market improves but wages miss; GBPUSD near $1.29

There’s been a strong move higher in cryptocurrencies in recent trade with Bitcoin surging to its highest level in 10-months after more than doubling in value since March. As is often the case with such an opaque market it is hard to definitively state what has caused this rally, but the recent escalation in US-China trade tensions seem about as plausible reason as any. Cryptocurrencies are often cited as a safe-haven asset - usually by those who try to justify reasons for investing given their poor efficacy as a transactional currency - and even though the longer-term correlations with equities are inconsistent at best, there has clearly been a flurry of buying as stock markets have tumbled in recent sessions.

It’s not just Bitcoin that has enjoyed a good day, with several crypto markets rallying and Ripple the pick of the bunch. Ripple has surged over 25% to move back above the $0.40 mark and trade at new highs for the year. The size of these moves are amongst the biggest seen to the upside since the 2017 highs and will now doubt raise hopes amongst crypto bulls that this could be just the beginning of another leg higher.

On the whole it’s been a better session for equities with the US indices opening higher and gaining since while Europe has also seen a recovery from the recent rout. One theme other than the US-China trade tensions that has been widely attributed to the rally seen throughout 2019 is the change in Fed policy as they paused their hiking cycle and the market even began to price in rate cuts as more likely than hikes. The recent escalation on the US-China trade front has only served to raise expectations for a cut in the Fed Funds Rate and the latest BoFA Merrill Lynch Global Fund Manager Survey has revealed some interesting views on this point.  More than 20% of fund managers questioned believe that the Fed would cut if the S&P500 fell below the 2500 mark - that’s only a little over 10% below current levels.

Lacklustre car sales data from China, the threat of the US car tariffs or Nissan-Renault merger rumours all have a detrimental impact on the market sentiment towards the German carmakers. However, one company from the German automotive sector - Volkswagen (VOW.DE) - found a way to boost’ investors interest in its shares. The company announced that it has resumed preparations for the IPO of its truck unit - Traton. Let us recall that the company halted preparations for Traton IPO in March on the back of volatile market conditions. It is rumoured that Traton may be valued at $30 billion, what would make it the biggest European IPO in 2019 so far. Volkswagen said that it wants to list Traton shares ahead of August and that it may sell as much as 25% of the business.

The latest employment figures from the UK have been mildly positive on the whole with the unemployment rate falling to 3.8% in the 3 months to March - its lowest level since 1974. One blot on the report was a drop in average weekly earnings 3m/y to +3.2% vs 3.4% expected, but a core reading which strips out the volatile bonus component came in in line with forecasts. In terms of market reaction there was little immediate volatility in the pound, but the currency has drifted further below the $1.30 handle to trade in the lows $1.29s and is not far from a 2-week low.