The spotlight is on 3 people at a delicate moment for markets
Investors are starting to push away anxiety about a spike in prices later this year. But continued calm may hinge on what three people have to say in the next week.
What’s happening: Investors will hang on to every word from European Central Bank President Christine Lagarde, Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey as these institutions announce policy decisions in the coming days.
Traders will be looking for reassurance that policymakers intend to keep interest rates low and continue massive bond-buying programs even as the post-pandemic economy starts to heat up.
First up is Lagarde, who will speak to journalists later Thursday.
“Despite the calm in fixed income markets, investors are still likely to be on the alert today,” Deutsche Bank’s Jim Reid said in a note to clients.
Economists think Lagarde will need to strike a delicate balance — walking “a middle path between optimism and caution,” as Deutsche Bank puts it.
Lagarde is expected to emphasize the ECB’s commitment to preserving favorable financing conditions, responding to fears that markets could be strained if bond yields continue their rapid ascent.
But Bank of America believes Lagarde needs to explain just what she means by “favorable financing conditions,” laying out exactly what the central bank is keeping an eye on during the next phase of the recovery.
“ECB communication during the last couple of weeks did not completely settle markets,” its analysts noted.
Up next: The Federal Reserve meets next Wednesday, followed by the Bank of England on Thursday. Powell and Bailey could face similar challenges.
Powell, in particular, will need to double down on the Fed’s commitment to keeping interest rates low for some time given Congress’ passage Wednesday of President Joe Biden’s $1.9 trillion stimulus package. The legislation is expected to provide a jolt to the US economy, but it could also spark inflation.
One more thing: Conversations about interest rates are particularly sensitive given unprecedented government borrowing over the past year. If central banks raise rates sooner than expected, the cost of servicing mountains of sovereign debt would jump, eating up government funds that could otherwise be spent on essential services or rebuilding weakened economies.
“Borrowing costs are affordable right now, but interest rates and inflation may not stay low forever,” UK finance minister Rishi Sunak warned when announcing the British government’s budget last week.
Roblox jumps in debut as stocks stage a comeback
Stocks could resume their relentless post-pandemic advance if inflation fears continue to ease.
See here: While the tech-heavy Nasdaq Composite was flat Wednesday, the Dow soared 1.5% to a record high. It was the first time the index closed above 32,000 points.
The jump came after Congress approved Biden’s flagship coronavirus relief plan — paving the way for him to sign his top legislative priority into law later this week and deliver aid to most American households.
Wednesday also saw investors pile into another blockbuster public offering. Shares of the popular video game platform Roblox debuted on Wall Street and surged nearly 55% to $69.50.
Roblox posted revenue of nearly $925 million last year, up 82% from 2019. It expects sales to rise about another 60% this year to as much as $1.5 billion.
But it’s still not profitable. It lost more than $253 million in 2020, up from a loss of about $71 million a year earlier.
The popularity of loss-making unicorn companies that have recently gone public has been one sign of market euphoria, as investors look for creative places to park their cash.
On the radar: Tech stocks continued to struggle Wednesday, but are showing signs of life in premarket trading. Apple shares are up 2% ahead of Thursday’s trading session, while Amazon has increased 1.4%. Tesla has jumped 3.7% before the open.
Don’t invest in a SPAC just because a celeb is involved
Shaquille O’Neal, Colin Kaepernick, Jay-Z and other celebrities are jumping into the SPAC boom. And the SEC is getting worried.
“Never invest in a SPAC based solely on a celebrity’s involvement,” the agency warned the public in an alert Wednesday, my CNN Business colleague Matt Egan reports.
The warning comes as professional athletes, politicians and pop stars leverage their star power to cash in on the popularity of special purpose acquisition companies. These “blank check” firms exist solely to buy an undetermined private company and take it public.
“Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss,” the SEC said. “It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.”
The agency also signaled it may take action aimed at protecting people from risks associated with SPACs. John Coates, acting director of the SEC’s division of corporate finance, said in a tweet that the agency is “taking a hard look at the disclosures and other structural issues.”
Watch this space: SPACs haven’t been immune from recent market drama. Bill Ackman’s Pershing Square Tontine Holdings has dropped more than 7% this month. Alex Rodriguez’s Slam Corp is off more than 3%.
As regulators scrutinize SPAC mania, another test could come from investors — who may be less interested in speculative investments as bond yields rise.
Up next
Initial US unemployment claims for last week arrive at 8:30 a.m. ET. Economists polled by Refinitiv expect another 725,000 claims, down slightly from the previous week.
Coming tomorrow: Fresh data on US prices and consumer sentiment.
