Stock markets are off to a decent start again this week with the US seeing more record highs on Wall Street.

This week is shaping up to be much quieter (famous last words) but against the backdrop of an encouraging earnings season, better Covid news and a massive stimulus package making its way through Congress, there’s still plenty of optimism out there.

Investors may be particularly encouraged by Treasury Secretary Janet Yellen’s assertion that the country could be back to full employment next year if it acts boldly now. The administration is facing strong opposition to their plans, including from former Treasury Secretary under Bill Clinton, Larry Summers.

Summers warning of inflation risks as a result of going too big have struck a nerve, it seems. Few are more qualified to weigh up the risks than Yellen, given her previous role as Chair of the Federal Reserve and she has stated there are tools to address it, should it materialise. But Summers’ words may impact the unity needed by Democrats to get the package over the line. Although this isn’t a risk that markets are seemingly taking too seriously at this point.

Italy outperforms as Draghi edges closer to forming government

Italian stocks are outperforming in Europe and former head of the European Central Bank, Mario Draghi, inches closer to becoming the country’s new Prime Minister. Talks with various parties appears to have progressed well over the weekend and more are due to take place today.

While I don’t think anyone expects this to lead to a prolonged period of political stability, it should provide enough to see Italy through the crisis, with the country having been hit terribly hard the last 12 months. Draghi has a massive task on his hands though, starting with how to spend the pandemic aid from the EU and reverse the economic damage of the last 12 months. That’s before he even considers longer term growth policies in a country that’s struggled on that front for many, many years.

Brent surpasses $60 on economic optimism

Oil prices are continuing to push higher, buoyed by improving sentiment in the markets and more optimism around the outlook as vaccines and lockdowns pay off. We’re seeing huge improvements in recent weeks and that will make people feel more positive that the light at the end of the tunnel is getting ever closer. It’s been a long winter, after all.

Yellen’s comments about the US being at full employment next year if the administrations full stimulus package is passed is also cause for optimism, with progress being made on this front with or without Republican backing. There may be some compromises that will bring the final number down but the bulk of the package looks in good shape.

Ultimately, the recovery in oil prices hangs on the sustainability of the recovery and while there have been problems in the rollout of the vaccine for many countries, we are seeing significant progress. Setbacks like those with AstraZeneca and the South African variant shouldn’t pose a significant threat to the reopening in most countries.

Gold nudges higher but remains vulnerable

Gold has been under serious pressure the last week and while it’s seeing some relief the last couple of sessions on the back of a poor US jobs report, it remains very vulnerable below. The yellow metal broke below $1,800 on Thursday and a run at the late November lows around $1,765 now looks likely.

The dollar has been firming and the index broke above 91 last week which was a major blow to the yellow metal. While Friday’s report took the wind out of its sails, it’s still finding support around 91 today, as it did at the end of the week, and would send a very bullish signal if it burst higher from here. Again, bad news for gold.

Even a slight move below 91 shouldn’t change the near-term outlook for the dollar and, therefore, gold. Higher yields in the US as the Democrats get their stimulus package over the line should be supportive for the greenback for now.

Bitcoin to the moon!

Bitcoin has smashed its way to new highs and may soon be eyeing $50,000 as Elon Musk gave further backing to the cryptocurrency. Tesla bought $1.5 billion of bitcoin in January and plans to start accepting it as payment, a huge move that further brings it into the mainstream both as a form of payment and investment product.

Whether there is someone out there that would actually buy a Tesla with bitcoin now is another thing but this is a big move by the company. Musk has had a lot of fun with cryptocurrencies recently but this is a firm move into the space and carries a lot more weight than an off the cuff tweet.

Some other companies may be tempted to follow but the vast majority will be far too cautious to expose themselves to the volatile world of cryptos. Musk isn’t one to shy away from bold moves though and has now put his money (well, Tesla’s) where his mouth is. And to think, the Super Bowl advert that never was may have been the big crypto story today. Either way, it’s off to the moon we go.