European futures are trading higher as investors pick up the momentum from yesterday’s session where the Nasdaq and S&P 500 indices closed at all-time highs. However, stock traders are playing it safe, as can be seen by the performance of US futures over the past few days, in anticipation of the Federal Reserve’s meeting scheduled to discuss its latest monetary policy.
The Dow Jones Industrial Average declined by 0.25% yesterday, while the S&P 500 rose 0.2%, reaching a new peak of 4,255.15. Likewise, the NASDAQ composite also broke all of its prior records by increasing 0.8% and closing at 14,174.14.
Following a decline in bond yields, investors have been once again pumping into tech and growth stocks. The 10-year Treasury bond fell to its three-month low, with the rate at under 1.43%.
Both Netflix and Apple have risen by nearly 2%, while Amazon, Facebook, and Microsoft have also posted gains.
The Federal Reserve is scheduled to meet to communicate its monetary policy. Although it is highly unlikely that the Fed is going to change the policy rate and will likely maintain its dovish strategy, the tone of the response has repercussions for economic reforms set by President Joe Biden and for financial stability across the world.
Stock traders should keep in mind that last week the US reported higher inflation figures exceeding projections. Despite this, Treasury yields dropped significantly and stock markets boomed, depicting that investors believe in the Fed’s narrative that inflationary pressures are short-term and are likely to eventually subside.
On the other hand, investors should be aware that this narrative carries significant risks, as uncontrolled inflation may force the hawks to act and abruptly tighten the monetary policy, potentially causing the US economy to enter a recession.
Chinese officials responded to the G7 summit where it was decided by western countries that they should work together to hinder Chinese influence and their rise to power. The US president, Joe Biden, stated that Western democracies are up against “autocrats”. He urged European leaders to collaborate and support an alternative to China’s Belt and Road Initiative, which would include infrastructure development aid to developing countries.
However, what is important to note that. as per a spokesperson at the Chinese embassy within the United Kingdom, such a strategy will likely create friction and confrontation. This may adversely affect the confidence of stock traders and likely push the markets down.
Following the surge in prices of oil, hitting their highest level in nearly two years, oil prices were flat on Monday because of rising production of US crude and the time extension in the Covid-19 reopening in the United Kingdom. Stock traders believe that this turnaround of events is likely to hamper expectations for tighter supplies and a surge in demand.
However, not everything is negative because as per the International Energy Agency (IEA), the global demand for oil will reach its pre pandemic levels by the end of 2022, rising more swiftly than is expected.
The rally within the US bond market lost steam, anticipating the outcome of the Fed’s meeting scheduled to be held this week. As a result, gold has slumped to its lowest point over the last thirty days. The decline in interest rates and the provision of economic stimulus have supported the rise in prices of precious metals over the last twelve months. However, stock traders are concerned that rising inflation and the economic recovery are likely to convince the Fed to withdraw its support.
Dow Jones Today
Many blue chip stocks in the Dow index rose by nearly 1%. Salesforce, Apple, and Microsoft were among the best performers, while Home Depot, Amgen, and 3M were among the laggards.
Asian Stock Markets
The Asian Pacific markets were mixed early on Tuesday, while the Australian stock markets were bullish. The Reserve Bank of Australia confirmed that it would be too early to halt the bond purchase programme, driving the S&P/ASX 200 up by 1.1%. The Nikkei 225 in Tokyo increased by 0.73% and the Shanghai Composite Index decreased by nearly 0.95%. Hong Kong’s Hang Seng index dropped 0.99% and the Seoul Kospi rose 0.06% as at 11.30 PM EST.
The United States has been successful in controlling the outbreak of cases due to an effective vaccination programme. According to the CDC, as of Tuesday, approximately 43.7% of Americans had been fully vaccinated, with 52.5% having received at least one dose. Since January, the number of new cases reported per day has decreased drastically, with 10,010 new cases and 205 new deaths reported on June 14.