(BFM Bourse) – Stock markets are hitting series highs and the CAC 40 has just crossed 8,000 points, while gold, considered a safe haven in risk aversion, has also hit a new record. Bitcoin is a special case.
Whether you put your money in gold, bitcoin, or the major CAC 40 groups, you’re likely to be a winner at the start of the year.
Bitcoin pushed back its 2021 record, surpassing $69,000 on Wednesday. Gold also broke its all-time high on the same day, and has since hit a new record mark of $2,164.78 an ounce.
At the same time, equity markets are also not excluded. The CAC 40 crossed the 8,000-point threshold for the first time this Thursday, two years after crossing the 7,000-point mark. The Parisian index is apparently not an isolated case: American markets continue to break their records. The last session of the S&P 500 was established on March 4 at 5,149.67 points. We’re not even talking about Nikki 225 who this year broke the dating record from the late 80s…
Every market rises for a specific reason, especially Bitcoin. overview.
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On the equity side, investors have appreciated the end of the cycle of monetary tightening by major central banks from late 2023.
If the market has revised downward its estimates of rate cuts, which were too optimistic, economists are still counting on several cuts for the US Federal Reserve (Fed) and the European Central Bank (ECB) to come as early as June. This is, for example, the view of Goldman Sachs. ECB President Christine Lagarde also appeared to refer to the deadline this Thursday, saying her institution would have “much more information in June”.
“Overall inflation on both sides of the Atlantic has continued to decline as expected by our central bankers. (…) Market expectations are now in line with our expectations at the beginning of the year, i.e. three to four drops during the year with the first movement before the summer”, summarizes Eric Bertrand, Deputy General Manager of OFI AM.
However, reductions in key rates and, by extension, interest rates generally encourage market operators to invest in riskier assets such as stocks.
The artificial intelligence craze is also spreading across equity markets, supporting risk appetite. The big winner of this trend, American graphics processor manufacturer Nvidia, dazzled the market with its latest results on February 21. The next day, its stock rose 16.4% on Wall Street but the CAC 40 also rose significantly by 1.3% on the same day, reflecting this trickle-down.
So the stock market rally is not limited to tech. “The largest capitalizations offer better visibility on their profit margins for lower valuation multiples than American technology,” judges Ostrum Asset Management. The financial intermediary notes that the value of the Euro Stoxx 500, a pan-European index, also constitutes an alternative to the “Magnificent Seven” of Wall Street (Nvidia, Microsoft, Alphabet, Apple, Meta, Amazon, Tesla).
“Equity markets are still well oriented, driven by the same dynamics as in January (the technology sector, artificial intelligence, especially luxury) and Europe and the United States are still polarized on some ‘giga-caps'”, underlines . Eric Bertrand. “These values are immune to cycles and, for the time being, to increases in interest rates,” he adds.
Another catalyst: CAC 40 companies have had good, even excellent, results. Of the 37 companies (Vivendi will publish its results on Thursday evening and Alstom and Pernod Ricard are in a halted fiscal year), the cumulative profits of the CAC 40 residents are close to 148 billion euros for 2023, according to a calculation by BFM Borse, compared to just 140 billion euros for 2022 (38 for stocks) less than Out of 37 stocks, 20 stocks registered gains after communicating their results. Above all, 15 saw their shares rise by more than 3% and 8 by more than 5%, again as calculated by BFM Borse.
Many tailwinds for Bitcoin
The first reason for the rise in bitcoin is the approval by the Securities Exchange and Commission (SEC), the American stock market watchdog, on January 10 of 11 “spot” (spot) ETFs, that is, index funds that mimic their performance. Cryptocurrencies However, these funds have several qualities that strengthen the appeal of the queen of cryptocurrencies.
First, ETFs are simple, valid products that are accessible to the general public, making Bitcoin more democratic. Second, these ETFs were launched by big names in finance, such as BlackRock and Fidelity, which in a way allowed Bitcoin to gain its nobility among financial assets. Liquidity flows into the fund have been massive since mid-January, with Backrock’s ETF raising $9.2 billion and Fidelity’s more than $5 billion, according to Deutsche Bank.
Another catalyst comes from the upcoming “halving,” the halving of the number of new bitcoins put into circulation to reward Bitcoin miners when they solve the mathematical problem of validating transactions on the blockchain, the technology that secures the Bitcoin network. The reward for miners will increase from 12.5 bitcoins per valid block to 6.25 bitcoins in April.
The event, which takes place every four years, traditionally drives up the price of the queen of cryptocurrencies. “In the 30 days before the November 2012 halving, prices increased by 5%. A more significant increase of 13% was seen before the July 2016 event. Most recently, prices increased by 27%. In the month before the May 2020 halving, % ,” Lists Deutsche Bank.
The German establishment insists that improving economic conditions also support Bitcoin. Future key rate cuts from central banks will “strengthen risk appetite and increase market liquidity,” she explains. However, according to him, this flow of capital should benefit assets that are riskier than bonds, such as cryptocurrencies.
Finally, the entry into force this year of the European Regulation on Crypto-Asset Markets (MiCA) and the efforts of American authorities to better regulate cryptocurrencies are also playing a positive role. “A clear regulatory framework will facilitate corporate adoption and increased liquidity (which will reduce concentration) and ultimately reduce volatility. These factors should contribute to higher bitcoin prices,” Deutsche Bank explained.
Mysterious progress of gold
There is still mystery surrounding the rise in gold. The precious metal’s record high is eyebrow-raising in many ways. Gold is a safe haven when risk appetite wanes. However, as evidenced by the rise in equity markets, this appetite is very present.
Additionally, gold should generally be penalized by the fact that investors have revised downward the number of key rate cuts by central banks, which is not the case. Indeed: the higher the interest rates, the less attractive gold is in theory, all things being equal. Unlike stocks (with dividends) and bonds (with coupons), gold does not generate income. Interest rates rise as a result of its price, as it then becomes less and less interesting to invest your money in gold instead.
UBS also agrees that the recent rally in gold cannot be explained by fundamentals and the bank is also struggling to find immediate support. However, she believes that investors have bet on crossing the technical threshold and hence the rise is due to betting on gold in the short term.
Bloomberg, for its part, floated the idea that Chinese households were able to buy gold during the Lunar New Year festivities to protect themselves from domestic stock market turmoil and real estate declines in the country. Perhaps some major central bank purchases may have also provided some support. According to Bloomberg, the People’s Bank of China, the country’s central bank, announced this Thursday that it has increased its gold reserves for the sixteenth consecutive month.
Julian Marion – ©2024 BFM Bourse
