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Why Are Markets In A Holding Pattern?

Why Are Markets In A Holding Pattern?

European and US futures are trading flat today as traders aren’t sure backing riskier assets after a lackluster session on Wall Street yesterday. It seems like the markets are returning to their previous pattern of summer trading, which means a no broader return for the equity market during the summer months. Having said that, energy stocks continue to perform quite well on the back of the bull rally in oil prices.

 

Crude and Brent

Both Crude and Brent oil recorded another day of gains yesterday, and the prices for both are also trading higher today. Basically, traders are feeling a lot more optimistic about the reopening of the global economy and the continuation of the vaccination process. In addition to this, if we look at oil supply, it seems like major oil producers are very much maintaining their discipline. Traders also understand that the US and Iran’s nuclear deal cannot be reinstated that easily, and it will take a while before the previous conditions are enacted. This means no immediate increase in oil supply, and this is also supposing oil prices.

 

OPEC’s Secretary-General, Mohammed Barkindo, has also said that any increase in oil prices from Iran will occur in an orderly and transparent fashion. However, traders believe that the Secretary General’s review may face a much bigger surprise when Iranian oil hits the market, as it is highly unlikely that Iranian authorities will not comply with any sort of restrictions imposed by the cartel. The country has been out of the oil market for a very long period of time, and it is desperate to sell its oil now.

 

Nonetheless, the current rally in oil prices may continue to push more upward price action for energy companies such as BP, Shell, Chevron, Exxon, and other oil producers.

Meme Stocks   

The meme stock frenzy continued yesterday and AMC’s shares saw another day of a massive surge in their prices. The company’s shares soared more than 95% during the trading hours and increased further 7% in the after-hours trading session. Other meme stocks such as Bed Bath & Beyond also increased in value by 62%. The FOMO helped Blackberry’s stock price advance by 32%, where as GameStop’s stock price increased nearly 33.2%. There is no doubt that these meme stocks are acting no different than cryptocurrencies that are widely blamed for their higher volatility.

Macro 

On the macro front, traders and investors continue to focus on inflation pressure and the reopening of the US businesses. All eyes will continue to remain on the upcoming USN FP data that is due tomorrow. Earlier this week, we have seen the US manufacturing numbers, which weren’t overwhelming, and today we have the US ISM non-manufacturing Services data. Suppose the data fails to report a meaningful pickup in jobs. In that case, we are highly likely to see traders’ selling their dollar positions further as they may anticipate another feeble NFP’s reading. On the flip side, if we see a strong ISM non-manufacturing reading, we could experience renewed demand for the dollar index because traders are likely to expect a rebound in jobs number due on Friday.

 Economic Docket         

As for the economic docket, we are likely to see another pandemic low reading for the US Weekly Jobless Claims. The consensus is that we could see the number of new filings declining to 400K while Continuing Claims may slide further. In addition to this, we also have the US ADP Employment report, which is likely to set the tone for the upcoming US NFP data that is due tomorrow. The forecast for the US ADP is for 650K against the previous reading of 742K.