Stock Market Today
European and US futures are trading almost flat as investors believe that the pace of economic growth has slowed both in the Europe and in the US. Generally speaking, investors are picking up the momentum where they left things off yesterday.
Following the economic reports (which we outline below), one begins to wonder whether economic growth is nearing its peak, and if so, whether a correction in the financial markets is due in the coming months. Furthermore, the combination of inflationary fears, concerns about higher taxes, pressures on profit margins, and the inevitable Fed tapering is likely to weigh on stock markets.
Stock traders have already begun to adjust their portfolios to the changing macroeconomic environment by shifting from value stocks to growth and technology stocks, which are less affected by economic cycle changes. Stocks centered on recovery, such as JP Morgan, Chevron, and Caterpillar, fell yesterday, while Alphabet, Apple, and Amazon rose.
Investors should keep in mind that the Fed’s latest meeting minutes are set to be released today. These minutes should provide hints of potential changes in the monetary policy in the short term. Having said that, the minutes are expected to stay dovish as inflation remains under control and the labour market grows at a sustainable pace.
Stock traders should understand that the tapering of the monthly bond purchases of $120 billion, is very likely going to be a signal of a potential hike in interest rates.
The S& P 500 and the Dow dropped 0.2% and 0.6% respectively, while the Nasdaq Composite gained 0.2% to a new all-time high.
Stock market indices were in a slump in yesterday’s session, when investors started to consider the possibility of economic growth seen in the past few months slowing down, as can be deduced from the unimpressive jobs report released on Friday, and the data published by the Institute of Supply Management on Tuesday.
The Institute for Supply Management (ISM) report prompted investors to purchase government debt in order to hedge against increased uncertainty. The ISM monitors activity in the services sector, and its data show that employment and business in the tertiary industry slowed in June compared to May. The slowdown was caused by companies struggling to find qualified candidates to fill vacancies.
ZEW Economic Sentiment
As per the latest data released by the ZEW economic research institute, sentiment of investors in Germany declined sharply in July and the demand for German manufactured products dropped at its fastest pace since the first lockdown in 2020.
Gold and the US Dollar
The gold price is still holding on to its gains and it is continuing its upward trend while investors keep a close eye on the biggest event of the day which is the Fed minutes, as mentioned above. The current bounce in the gold price is chiefly due to the weakness in the dollar index and this has pushed the gold price above $1,800. Treasury yields in the United States were at their lowest in two weeks, reducing the opportunity cost of holding the precious metal and hence making it an attractive option for traders.
Earlier, the Fed’s hawkish surprise dragged gold prices below $1,800. However, following recent economic updates, monetary policy is expected to remain loose as concerns about inflation and rapid economic growth fade. This is also one of the reasons for the decline in bond yields. This scenario may persuade institutional investors to hold gold as well which could cause the price of gold to rise above $1,900.
Brent and Crude oil prices have moved away from highs as traders have started to book some profits after the gigantic rally in oil prices. West Texas Intermediate crude futures hit their highest level in more than six years yesterday after OPEC+ postponed its meeting indefinitely. The cartel was unable to reach an agreement on production beyond August.
When the coronavirus pandemic began, OPEC+ agreed to the historical production cuts to reduce oil supply in order to support falling oil prices as a result of a drop in demand. The group recently voted on a proposal that could have added 400,000 barrels per day to the market beginning in August. The conflict between the UAE and the group, on the other hand, has created uncertainty in the commodity market.
Asian Stock Markets
The Nikkei 225 index in Japan dropped 0.98% in morning trade, and the Shanghai Composite Index declined nearly 0.02%. As of 10:54 p.m. EST, the ASX 200 index rose 0.59%, and Seoul’s Kospi had decreased 0.57%. Hong Kong’s Hang Seng index fell 1.07%.