Futures in the United States and Europe are trading lower today after the S&P 500 climbed to new highs in yesterday’s session. The equity indices surged as corporate earnings have shown great strength in the last quarter and have massively outperformed expectations. Similarly, economic reports are depicting a positive outlook for the coming months, with the jobs market in better shape and inflation under control, as was communicated by the Fed.
The US markets have shown great resilience over the last few months and have doubled from their pandemic era lows. The S&P 500 has posted gains for the last 5 days in a row and jumped 0.3% in yesterday’s session. Monday’s surge helped the index to double from its March 2020 bottom when investors were engaged in a major selloff. The tech sector has made the best out of the coronavirus situation, with earnings and valuations skyrocketing. Despite the Nasdaq declining in yesterday’s session, the index had already doubled from its 2020 levels in February.
On the other hand, China has been going through a cooling off phase. As per China’s National Bureau of Statistics, industrial production has risen a mere 6.4% as compared to the projected 7.8%. Similarly, retail sales were expected to jump 11.5%, but in actuality rose by a meagre 8.5%. Rising coronavirus cases are likely to be fuelling the slowdown. Having said that, the US and European markets are unlikely to be significantly affected.
As of 10:46 p.m. EST, the Nikkei rose 0.14% while the Shanghai Composite Index was up 0.08%. The ASX 200 index dropped 0.77% and Seoul’s Kospi fell 0.81%. The Hang Seng index, in Hong Kong, is down 0.13%.
Traders will be looking very closely at the upcoming US retail sales number, industrial production number and the Fed Chair, Powell’s speech. These events are very likely to drive the price action over in the US for equities and most likely to bring higher volatility as well.
On the geopolitical front, the relationship between the two biggest economies in the world, the United States and China, is also getting heated rapidly. Investors should note that Gary Gensler, Chair of the U.S. Securities and Exchange Commission, has warned stock traders of the potential risks of investing in Chinese-based companies. He has said that there is a lot that Americans don’t know about Chinese companies that are listed on US stock exchanges.
Earlier this year, the US regulator put a hold on Chinese companies from conducting IPOs until they provide more comprehensive disclosures. The regulators also warned that investors may be buying stakes in shell companies rather than getting direct exposure to businesses based in China. Investors should understand that the stance taken by American officials as well as the rise of the regulatory crackdowns in China has raised uncertainty, leading to higher investment risk.
Bitcoin prices have risen in recent weeks, with new data indicating that institutional investors are becoming increasingly interested in the blockchain space. The digital coins are being used as a diversification strategy by large corporations. Capital worth $17 billion has already been invested in the sector as of 2021.
The biggest asset manager in the world, having assets worth $9.5 trillion under its management, BlackRock has exposure to cryptocurrencies through its Global Allocation and Strategic Income Opportunities funds. Similarly, CoinDCX has become a first of its kind crypto startup to achieve unicorn status in India. The startup has raised $90 million in funding.
Oil prices fell nearly 3% on Monday after weak economic reports indicated a slowdown in the Chinese economy, dragging down prices as demand is unlikely to rise significantly in the short term. In July, Chinese crude oil processing fell to its lowest daily level since May 2020, as refiners cut output in response to declining profits, tighter quotas, and rising inventories.
OPEC, on the other hand, stated that there is no need for additional oil supplies and that they will continue to produce according to the plan announced at its last meeting. This update gave some support to the falling prices.
Gold prices rose on Monday, owing primarily to a drop in treasury yields as a result of the worldwide increase in coronavirus cases. The decline in treasury yields reduces investors’ opportunity cost of holding gold. Stock traders should closely watch the Fed minutes to be released on Wednesday to get clues into how the central bank could tweak its monetary policy in coming months and to get a broad sense of when the bond purchases are likely to be tapered off.