(BFM Bourse) – The stock markets are hitting a series of highs and the CAC 40 has just crossed 8,000 points, while gold, which is supposed to constitute a safe haven asset in the event of risk aversion, has also set a new record. Bitcoin is a bit of a special case.
Whether you have placed your money in gold, bitcoin or the major CAC 40 groups, you are very likely a winner at the start of the year.
Bitcoin pushed back its 2021 record, rising to more than $69,000 on Wednesday. The same day gold also broke its all-time high, and has since reached a new record mark at $2,164.78 per ounce.
At the same time, the equity markets are not left out. The CAC 40 has just crossed the threshold of 8,000 points this Thursday for the first time, a little over two years after having exceeded 7,000 points. The Parisian index is obviously not an isolated case: the 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 the Nikkei 225 which this year broke a record dating from the late 80s…
Every market rises for specific reasons, bitcoin in particular. Overview.
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On the equity side, investors have appreciated since the end of 2023 the end of the cycle of monetary tightening by the major central banks.
If the market has revised downwards its projections on rate reductions, which were too optimistic, economists are still counting on several cuts which could occur as early as June for the American Federal Reserve (Fed) and the European Central Bank (ECB). ). This is, for example, the Goldman Sachs scenario. Christine Lagarde, the president of the ECB, also seemed to refer to this deadline this Thursday, declaring that her institution would have “much more information in June”.
“Overall inflation continues to decline on both sides of the Atlantic as expected by our central bankers. (…) Market expectations are now in line with our expectations at the start of the year, namely three to four drops over the year with a first movement before the summer”, summarizes Eric Bertrand, deputy general manager of OFI AM.
However, a drop in key rates and, by extension, interest rates normally encourages market operators to invest in risky assets, such as shares.
The craze for artificial intelligence is also spreading across all equity markets, supporting the appetite for risk. The big winner of this trend, the American graphics processor manufacturer Nvidia, dazzled the market with its latest results on February 21. The next day, its action jumped 16.4% on Wall Street but the CAC 40 also rose very significantly, by 1.3% the same day, illustrating this trickle-down.
The stock market rally is therefore not limited to tech. “The largest capitalizations offer good visibility on their profit margins for valuation multiples lower than American technology,” judges Ostrum Asset Management. The financial intermediary notes that the values of the Euro Stoxx 500, a pan-European index, also pose an alternative to the “Magnificent Seven” of Wall Street (Nvidia, Microsoft, Alphabet, Apple, Meta, Amazon, Tesla).
“The equity markets still remain well oriented, driven by the same dynamics as in January (technology sector, artificial intelligence, luxury in particular) and also still polarized on a few ‘giga-caps’ in Europe and in the United States”, underlines Eric Bertrand. “These values are free from the cycle and, for the moment, from the rise in interest rates,” he adds.
Another catalyst: the results of CAC 40 companies have been good, even excellent. Out of 37 companies (Vivendi will publish its results Thursday evening and Alstom and Pernod Ricard are in staggered financial year), the cumulative profits of CAC 40 residents are close to 148 billion euros for 2023, according to a count from BFM Bourse, against a just under 140 billion euros (for 38 stocks) for 2022. Above all, the majority of publications were well received by the market. Out of 37 stocks, 20 recorded an increase following the communication of their results. Above all, 15 saw their shares increase by more than 3% and 8 by more than 5%, again according to a count by BFM Bourse.
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” ETFs, i.e. i.e. index funds that replicate the performance of cryptocurrency. However, these funds have several virtues which reinforce the appeal of the queen of cryptocurrencies.
First, ETFs are simple, recognized products that are accessible to the general public, which further democratizes bitcoin. Secondly, these ETFs were launched by big names in finance, such as Blackrock and Fidelity, which allows bitcoin, in a way, to gain its nobility among financial assets. According to Deutsche Bank, the influx of liquidity into these funds has been massive, with $9.2 billion collected by Backrock’s ETF and more than $5 billion by Fidelity’s, since mid-January.
The other catalyst comes from the upcoming “halving”, that is to say the halving of the number of new bitcoins put into circulation to reward bitcoin miners when they solve a mathematical problem to validate transactions on blockchain, the technology that secures the bitcoin network. The reward for miners will increase from 12.5 bitcoins to 6.25 bitcoins per validated block in April.
This event, which takes place every four years, traditionally results in an increase in the prices of the queen of cryptocurrencies. “In the 30 days preceding the November 2012 halving, prices increased by 5%. A more substantial gain of 13% was seen before the July 2016 event. More recently, prices increased by 27%. % in the month preceding the May 2020 halving,” lists Deutsche Bank.
The German establishment emphasizes that improving economic conditions also support bitcoin. Future key rate cuts from central banks should “reinforce the appetite for risk and increase market liquidity,” she explains. However, according to her, this influx of capital should benefit assets that are riskier than bonds, such as cryptocurrencies.
Finally, the entry into force this year of European regulation on crypto-asset markets (MiCA) and the efforts of the American authorities to better regulate cryptocurrencies are also playing a positive role. “A clearer regulatory framework should drive corporate adoption and increased liquidity (which will reduce concentration) and ultimately help reduce volatility. These factors should contribute to higher prices bitcoin,” explains Deutsche Bank.
The mysterious progression of gold
The mystery surrounding the rise in gold remains. The precious metal’s record highs are eyebrow-raising in many ways. Gold is meant to be a safe haven when risk appetite falls. However, as evidenced by the rise in equity markets, this appetite is very present.
In addition, gold should normally be penalized by the fact that investors have revised downwards the number of key rate cuts by central banks, which is not the case. Indeed: the higher the interest rates, the less theoretically attractive gold is, all things being equal. Unlike stocks (with dividends) and bonds (with coupons), gold does not produce income. Its price is consequently hit by a rise in interest rates, because it then becomes less and less interesting to invest your money in gold rather than investing it.
UBS also agrees that the recent rise in gold cannot really be explained by fundamentals and the bank is also struggling to find an immediate justification. However, she judges that the increase is perhaps due to investors betting on crossing technical thresholds, and thus speculating in the short term on gold.
Bloomberg for its part puts forward the idea that Chinese households were able to buy gold during the Lunar New Year festivities to protect themselves from turbulence on the local stock market and the fall in real estate in the country. Perhaps also the purchases of certain major central banks may have provided a little support. According to Bloomberg, the People’s Bank of China, the country’s central bank, announced this Thursday that it had increased its gold reserves for the sixteenth consecutive month.
Julien Marion – ©2024 BFM Bourse