European and US futures are trading lower as investors are concerned about the rise in Delta cases around the globe. The Dow and S&P 500 retraced from their record highs as bears took control of major indices. Having said that, the rise in delta cases may be more of temporary issue as vaccination numbers continue to increase in the US and in other parts of the world.
In addition to this, most of the workplaces are making vaccination mandatory which should help to reduce the concerns about the delta variant. Furthermore, medical professionals are now in a better position to care for Covid patients, due to availability of higher quality treatments.
Energy Sector and Oil
It is the energy sector where most of the bleeding is taking place as oil prices continue to trade lower. Yesterday, we saw both crude and Brent oil prices drop over $3 at one stage.
The fear among investors and traders is that if the number of Covid cases continues to rise, authorities may be forced to impose strict controls on social distancing. This would have an adverse impact on economic growth and on oil demand. Investors should pay close attention to crude oil inventory data to determine how oil prices will fluctuate in the short term.
Following the bullish labour market reports released last week, which depicted strong economic growth, stock traders should now focus on the current state of inflation in the economy. The consumer and producer price indices are set to be released on Wednesday and Thursday, respectively.
Inflation updates are critical for investors because they allow them to forecast how the Federal Reserve will proceed and adjust its monetary policy. According to the Fed’s mantra, the recent surge in inflation will fade as supply-side bottlenecks are addressed. According to a Bloomberg survey, consumer prices increased by 0.5% month-over-month in July. Year-on-year, the inflation rate is expected to fall from 5.4% in June, to 5.3% in July.
Investors should understand that a potential strengthening in inflation might force the Fed to speed up its timeline for tapering its massive bond purchases, which have helped stimulate the US economy since the onset of the coronavirus pandemic. These unprecedented stimulus measures aided in the uptick of liquidity, allowing stock markets to reach new highs. According to Fed official Raphael Bostic, the central bank could begin tapering off its bond purchases as early as October.
Later this week, Kansas City Fed President Esther George and Chicago Fed President Charles Evans are expected to speak. This would further aid investors in deciphering what path the Federal Reserve is likely to take in coming months.
Crypto enthusiasts should be over the moon following the strength in crypto prices seen during the last few days. Yesterday, the price of Bitcoin finally broke through the $46,000 barrier. This is the highest price since May 16, when Bitcoin was worth nearly $49,000. Similarly, the price of Ether surpassed $3,000 over the weekend, reaching this level for the first time since May. It is currently worth more than $3,100.
The surge in momentum in prices of digital coins comes amid discussions relating to the proposed infrastructure bill. The vote relating to the bill is being delayed as officials debate two competing tax provisions relating to cryptocurrencies which would help the government to raise a part of $28 billion which would be used for infrastructure spending.
Investors have reacted positively to the debates because they show that there is a lot of interest in cryptocurrencies in Washington as well. Supporters of digital currencies have taken advantage of this opportunity to educate government officials about the blockchain space and how it can help the United States advance in the digital realm.
Gold prices fell to their lowest level in nearly four months as a result of the strong jobs data, which suggested that tapering of stimulus may occur sooner than previously anticipated, and that the Fed may also raise interest rates. A rise in the policy rate would raise the opportunity cost of holding the precious metal, making it less appealing to investors. The dollar index, on the other hand, has risen to a two-week high.
Investors should keep in mind that if economic reports in the coming months show any signs of weakness in economic recovery, gold prices will retrace upwards. Furthermore, as economies, particularly in Asia, recover, commercial and consumer demand for the yellow metal will surge. This would also help to keep gold prices from falling any further.
As of 11:27 p.m. EST, the Nikkei was up 0.31% while the Shanghai Composite Index declined 0.12%. The ASX 200 index jumped 0.09% and Seoul’s Kospi slumped 0.69%. The Hang Seng index in Hong Kong hopped 0.23%.