US and European stock futures are set to pick up the momentum where they left off last week. We saw the US stock indices posting their worst weekly performance since February last year, which indicated that bulls had lost their interest in backing riskier assets. In addition, the economic data such as the US CPI reminded investors that they need to be conscious about the current surge in US inflation, and this particular warning sign is likely to bother investors and traders this week as well.
Traders are very much going to be focused on the biggest event of this week: the Fed’s minutes, and they would like to know what the Federal Reserve thinks about the recent US CPI data. Remember, the Fed has shown no concerns about soaring inflation for the time being as they believe that the current surge is only temporary.
Overall, the focus will remain on more macro events now as the earnings season is coming to an end, with more than 90% of the S&P 500 having reported their numbers. The earnings season has been extraordinary because 86% of the S&P 500 companies have been able to beat the forecast and report positive EPS surprises, which is the highest percentage of positive earnings surprise since 2008.
Today we also had important economic numbers out of China, which confirmed that economic recovery is still somewhat sluggish in the country. For instance, the consumer spending data fell well short of expectations and confirmed that the rate of consumer spending has slowed as compared to the previous month’s reading. In addition to this, if we look at the retail sales numbers, they were also underwhelming. The retail sales y/y data came in at 17.7% against the forecast of 25.% while the previous reading was at 34.2%. Overall, the message from the Chinese economic number is that economic recovery is still not fully balanced, and we need to see much more improvement in household income spending and manufacturing investment.
Over in the UK, we will see further relaxation of the coronavirus-related measures as indoor dining will be allowed, and this should have a more positive influence on economic activity. Consumers have not been lucky with the weather, and businesses have suffered as they weren’t allowed to serve clients indoors. Boris Johnson, the UK Prime Minister, has already indicated that any further relaxation of coronavirus-related restrictions must be taken with extreme caution as the Indian mutation of coronavirus remains a major threat.
Gold prices are likely to continue their run this week as traders know that economic recovery in the US is uneven. For instance, the US retail sales number released last week were underwhelming. Traders became concerned that consumers aren’t spending, and this means that economic recovery isn’t likely to tick higher. The data also adversely influenced the gold prices, and this is further supporting the gold prices.
As for oil prices, we see oil prices trading modestly higher today, but traders are still very much conscious of the negative influence of the Indian coronavirus mutation. Covid cases continue to rise in India, and investors are keeping a close tabs on the oil supply.
In the crypto market, the dominant word over the weekend was Elon. Every time Elon Musk’s name was mentioned, traders became nervous. Bitcoin traders are worried that Tesla may have sold or may dump its Bitcoin’s positions. The concern is that Tesla was leading the trend of how corporates should diversify their holdings, and now that Tesla may not hold Bitcoin in their treasury system, other companies may slow their pace of diversifying their holdings to other cryptos.
It is important to keep in mind that it is true that the current sell-off in Bitcoin price is mainly due to Elon Musk. But the reality is that Bitcoin lost its upward momentum a long time ago, and this is because all that positive news about Bitcoin failed to push Bitcoin prices higher. It was clear that Bitcoin prices went too far, and a correction was due. This correction is taking place now, and it is likely that we may see the Bitcoin price decline further. The near-term support for Bitcoin is near the 38K price level.