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Markets Close on a Dip and A Big Day for Oil Ahead

Markets Close on a Dip and A Big Day for Oil Ahead

Futures in the United States and Europe are up today following the dip in U.S. stock markets in yesterday’s session. Prices of stocks fell as an unexpected surge in Eurozone inflation, and the recommencement of travel restrictions took investors by surprise. In yesterday’s session, the Dow Jones Industrial Average fell 0.11%, and the S&P 500 index declined 0.13%. The Nasdaq, the tech-savvy index, dropped 0.04%, while the Russell 2000, the small-cap index, rose 0.34%.

Stock Market

Inflation in the Eurozone jumped from 2.2% in July to 3% in August. Responding to this, Robert Holzmann, the chief of Austria’s Central Bank, stated that the ECB should start considering its plan to reduce its colossal $1.85 trillion stimulus programme.

Having said that, investors should keep in mind that, despite the bearish sentiment seen in yesterday’s session, the major stock market indices ended the month on a positive note. The S&P 500 has consecutively surged for the last seven months. The Dow jumped 1.2%,while the Nasdaq rose nearly 4% in August.

Moving forward, investors should understand that markets now appear to be highly correlated with Federal Reserve policies rather than corporate earnings or the outlook for economic recovery. One reason could be that investors have become highly addicted to the Fed’s stimulus, which has augmented liquidity in the U.S. economy and thus been a significant factor contributing to the progressive performance of equity markets. As a result, there is a risk that monetary policy will become a factor fueling volatility, which is contrary to a central bank’s goal of projecting stability. In the coming months, the central bank must carefully craft its policies and communication to avoid alarming investors and maintaining a Goldilocks environment.

Furthermore, given the stock market’s back-to-back gains, investors should expect a minor adjustment in September. A retracement is expected because markets have not seen one since last October, and there is still uncertainty about the coronavirus. Furthermore, the much-anticipated Federal Reserve meeting will take place this month as well. However, any drop in the indices should be viewed as an opportunity to bag good stocks at bargain prices considering potential economic growth and an accommodative monetary policy.

Economic Reports

According to the consumer confidence data released yesterday, rising product prices and uncertainty related to the spread of the Delta variant have weighed in on the optimism of Americans. The index declined to 113.8 from 125.1 in July. The forecasted figure was 123.

Today marks the release of the German PMI and the ISM PMI in the United States. Investors should scrutinize these reports to get a sense of how manufacturing activity is likely to change in the near future. Furthermore, the ADP nonfarm employment change data will be released today. This report will serve as a teaser for the important nonfarm employment report, which will be released on Friday and will depict the state of the labour market.

Cryptocurrencies

Ethereum’s price is looking immensely bullish. The cryptocurrency has been sleeping for a while as the price was doing but consolidating. Yesterday, we saw the price breaking out of its ugly zone and now traders have a clear direction for Ethereum. Looking at the price action, it seems that ETH traders have only one price point in focus and that is the all-time high. It is highly likely that we may actually begin to see ETH outperforming Bitcoin and the gains in ETH are likely to be much more superior. 

It is very possible that we may see the ETH price breaking above the 5K if the momentum continues like this and in fact the 10K target for ETH is also looking much more realistic now.

Oil

Today is a very important day for oil traders as the OPEC meeting is scheduled to convene later today and the crude oil inventories data is also set to be published today. Updates regarding the two events would help investors understand the prospective demand and supply dynamics of the industry. The U.S. administration over the last few weeks has been pushing OPEC countries to raise their supply to cater to growing demand and facilitate a seamless economic recovery. However, it is expected, and as per officials, the cartel is likely to stick to its plan to add 400,000 barrels per day to its monthly supply till December 2021. According to the oil group’s own findings, the market is likely to shift from deficit to surplus in 2022.

Furthermore, due to the tropical storm, Ida, various oil refineries have paused operations and this could have a toll on oil inventories, potentially pushing oil prices up if companies are not able to resume operations at capacity in the next two to four weeks. The crude oil inventories data would also show how the gap between demand and supply is likely to play out in the short term.

Gold

The yellow metal has been rising on the basis of the falling dollar index. The dollar dropped to its lowest in nearly 3 weeks after the dovish stance taken by the Fed related to its monetary policy. Investors are eagerly waiting for the payroll numbers to be released later this week. A disappointing number may likely provide the Fed with an excuse to delay the withdrawal of its ultra-loose monetary policy and hence this could have a negative impact on the US Dollar.

Asian Markets

Manufacturing activity in China fell last month, according to the country’s official manufacturing PMI, which was released on Monday. The reading fell from 50.4 in July to 50.1 in August. Despite the fact that the figures have been lower, they are still above the 50.0 mark, indicating expansion. The Caixin/Markit manufacturing Purchasing Managers’ Index for August, released today, can help investors better understand the situation.

As of 11:16 p.m. EST, the Nikkei rose 1.27%, while the Shanghai Composite Index was up 0.18%. The ASX 200 index dropped 0.52% and Seoul’s Kospi surged 0.01%. The Hang Seng index, in Hong Kong, has jumped 0.30%.