On Wednesday, bitcoin dived 30% to nearly $30,000 at one point, before paring some of those losses. The move lower was driven by mixed signals from Elon Musk and Tesla’s decision to reverse a decision to allow bitcoin as payment for cars, pointing to the environmental impact of bitcoin mining. Also weighing on bitcoin’s price Wednesday was the news that China had banned financial institutions and payment firms from providing cryptocurrency-related services, reiterating its tough stance on digital currencies.

After staging a rebound on Thursday, Bitcoin cut gains after the US Treasury Department said it is taking steps to crack down on cryptocurrency markets and transactions and said it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service.

This week’s crypto crash has helped erase almost 40% from bitcoin’s price from a peak of almost $65,000 in mid-April to current levels of $36,500.

Equities were mixed in the U.S. over the week with the tech-heavy Nasdaq (+0.31%) gaining a little ground and the other major U.S. indices (S&P 500 and Dow Jones) ending modestly lower. Investors continue to be concerned that strong U.S. growth could result in higher prices (inflation), forcing the Federal Reserve to pare back its accommodative monetary stance earlier than planned. The minutes of the April meeting of the Federal Open Market Committee revealed that a number of members were “thinking about” discussing tapering bond purchases “at some point in upcoming meetings.” According to a number of economists, the base effects caused by the global lockdowns, as well as transitory supply chain bottlenecks and the presence of significant labour market slack justifies the Federal Reserve’s outlook given that U.S. unemployment is still 5% below pre-pandemic levels. With this in mind, we continue to expect the Federal Reserve to ultimately maintain its credibility and sustain its accommodative monetary policy stance.

Shares in Europe rose on signs that the economy is rebounding with the Eurozone May flash services PMI 55.1 vs 52.5 (expected) reaffirming the pick-up in services activity in the euro area as economies start to reopen and move on from virus restrictions. The pan-European STOXX 50 Index ended the week 0.21% higher.

Meanwhile, as the UK continued to lift lockdown controls retail sales rebounded strongly in April. Sales volumes jumped 9.2% month on month – twice the average forecast in a Reuters poll of economists and the biggest rise since June – after rising 5.1% in March. Clothing sales soared by almost 70%. The UK’s FTSE 100 Index fell 0.36% over the week as the pound strengthened on the back of the stronger economic data.

Japan’s stock markets finished the week higher, with the Nikkei 225 Index returning 0.83% while Chinese stocks recorded a mixed week with the benchmark Shanghai Composite Index shedding 0.1%.

Market Moves of the Week:

South Africa’s central bank left its repo rate unchanged at 3.5% in a unanimous decision on Thursday, saying it saw the inflation risk on the upside. Reserve Bank (SARB) Governor Lesetja Kganyago said a recent spike in consumer prices was temporary, but that the bank would not hesitate to tighten policy if it became permanent. At the meeting the bank trimmed its forecast for consumer price-growth in 2021, to an average of 4.2% from 4.3% in March. It left forecasts for CPI in 2022 and 2023 unchanged, at 4.4% and 4.5% respectively.

Both S&P Global Ratings and Fitch decided not to cut their rating of South Africa deeper into sub investment grade on Friday, with Fitch noting that South Africa’s state finances have “improved substantially” despite continued “substantial risks to debt stabilisation”. Fitch noted that strong commodity prices have helped South Africa to achieve a current-account surplus of 2,2% of GDP, the first since 2002. S&P also highlighted the boost of higher commodity prices but said that structural constraints, a weak pace of economic reforms and a slow vaccination rate will continue to constrain economic growth.

The JSE All Share Index recorded a loss of 0.54% for the week dragged down by the resource sector (-3.27%) which was sharply down on the week. The rand gained for a second day on Friday ending the week at R13.97 to the U.S. Dollar.

Chart of the Week:

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Equity markets were subdued this week as positive incoming vaccine news was offset against ever-growing economic restrictions in the U.S. and Europe, aimed at curbing the recent spike in virus cases. On the vaccine front, the world received more positive news, following on from Pfizer and BioNTech’s announcement last week, with Moderna stating that its Covid-19 vaccine candidate is 94.5 percent effective. Both vaccines are based on introducing genetic material, mRNA, into the human body in order to produce spike proteins which prevents the coronavirus from entering human cells.

Meanwhile, The University of Oxford confirmed that the Covid-19 vaccine it is developing with AstraZeneca Plc, produced strong immune responses in older adults, with pivotal findings from the final phase of trials expected in the coming weeks. In less positive news, the U.S. crossed a grim milestone with fatalities attributed to Covid-19 crossing 250,000.

U.S. economic data releases during the week were mostly soft. Weekly jobless claims rose for the first time in over a month, from 711,000 to 742,000. Retail sales excluding autos in October also missed expectations and grew at the slowest pace (0.2%) since April, whilst industrial production rose a bit more than expected in October, but regional manufacturing gauges indicated slowing expansion.

Whilst President Trump continues to refuse to concede the recent election, his efforts were dealt another blow with President-elect Biden’s victory in Georgia confirmed by a recount. The Democrats beat the Republicans in Georgia by 12,284 votes, according to the audit required by state law.

In Europe, Hungary and Poland blocked the EU planned EUR 1.8 trillion fiscal package. Both countries opposed a mechanism that would allow the EU to block disbursements to countries violating its rule of law principles. German Chancellor Angela Merkel said she would hold talks with the leaders of the two countries while defending the existing proposal.

Brexit trade deal negotiations are down to the wire and expected to continue through the weekend and possibly into next week. If both sides don’t sign a trade deal, Britain will default to trading with the EU on WTO terms. France, the Netherlands, and Belgium urged the EU to start implementing contingency measures in case there is no deal before the Brexit transition ends on December 31.

Japan’s economy grew by 21.4% (annualised) in the third quarter, ahead of consensus estimates for a 18.9% increase. Prime Minister Suga and the International Olympic Committee also agreed that the Tokyo Olympics should be held despite the latest surge in the pandemic. The Olympic games are scheduled to be held from July 23 to August 8, 2021.

U.S. markets ended the week mostly negative, with the Dow Jones Industrial Average (-0.73%) and S&P 500 (-0.77%) both in the red compared to a mildly positive Nasdaq (+0.22%). This compares to European and Asian markets which both managed to finish the week in positive territory. In Europe, FTSE 100 Index (+0.56%) and Euro Stoxx 50 (+1.04%) were stronger along with the Nikkei (+0.56%) and China’s Shanghai Composite Index (+2.04%).