US and European futures are trading higher as investors are ready to back riskier assets once again and yesterday’s US CPI data and the ECB meeting have only increased their appetite for riskier assets. In the US, the inflation number surged further yesterday, however it’s not that. Rather, it’s the fact that the the Federal Reserve maintains their view that the reasons driving the inflation figures up are expected to be transitory and will likely decline in the coming months. This premise has given traders confidence that a dovish strategy will strengthen the economy even more, as evidenced by the performance of the stock markets yesterday.
The stock markets rallied as investors anticipated the Fed would maintain its dovish position. The Dow Jones Industrial Average rose 0.06%, while the S & P 500 index rose 0.47%.The Nasdaq, the tech-heavy index, rose by 0.78%, while the Russell 2000, the small-cap index, fell by 0.68%.
Traders are looking the ECB’s increase in its inflation and growth forecasts through a positive lens. That is because; it is clear from the ECB’s message that the bank is committed to keeping the stimulus flowing over the summertime. The fact that the ECB has said that a pullback in its asset purchase now would hasten a worrying spike in borrowing costs demonstrates that the ECB doesn’t desire to choke the recovery.
Another factor that is making traders to take more risk is that the ECB said it will buy bonds at a “much higher” rate than in the early months of the year, repeating its stance from March.
With the COVID-19 lockdowns eased and vaccinations ramping up, the ECB increased most of its growth and inflation forecasts and deemed risks to the outlook balanced, dismissing long-held warnings about downside risks.
The Euro is trading higher on the basis that the ECB increased its growth forecast to 4.6% in 2021, which is higher than the expected 4% in March. Similarly, the 2022 projection was increased from 4.1% to 4.7%.
Inflation forecasts for the following few years have also been revised, with the ECB now expecting prices to rise by 1.9% this year. This is significantly higher than its previous forecast of 1.2%, and in line with its goal.
GameStop stock is likely to be the one which is worth keeping an eye on today as well. The business stated yesterday that it planned to offer more shares and announced that regulators were looking into the trading of its stock. GameStop Corp.’s stock dropped the most since March. After plunging more than 10% at one point, the GME stock plummeted 5.5% later on.
Despite the negative sentiment in the markets, it is important to note that the company shattered its first-quarter earnings forecasts and appointed new senior executives. It also intends to nominate a new chairman, who is expected to implement positive reforms and attempt to turn the firm around.
Gold prices are maintaining their gains today as the Consumer Price Index (CPI) within the United States climbed steadily in May. The increase in inflation is fueled by rise in demand for services related to travel and an increase in prices of used cars, due to a semiconductor shortage across the globe. The change in the CPI was the greatest in the last 13 years. The statistics associated with May’s inflation supports Federal Reserve Chair Jerome Powell’s stance that the high inflation figures are likely to be momentary, as the main drivers are caused by economic openings affecting supply side factors.
Last month, the CPI rose 0.6%, after rising 0.8% in April. This was the highest growth in prices reported since 2009. Fuel prices have fallen for the second month in a row, while food prices have risen by 0.4%. The CPI rose by 5% during the last twelve months ending in May. These figures are the highest year-over-year rise since August 2008.
For the week ending June 5, the number of initial applications for state unemployment benefits fell by 9,000 to a seasonally adjusted 376,000. The claims have been declining for six straight weeks, and are at the lowest since the coronavirus pandemic’s first wave in March 2020.
On the other hand, traders should keep in mind that, although claims have decreased from a peak of nearly 6 million in April 2020, they remain significantly higher than the recommended range of 200,000 to 250,000 claims, which is healthy for a strong labour market.
Many blue chip stocks in the Dow index rose by nearly 1%. Walgreens Boots Alliance, Merck, and Amgen were among the best performers, with Walgreens Boots Alliance increasing by 3.52%, while Walt Disney, 3M, and UnitedHealth were among the laggards.
Asian Stock Markets
Following Wall Street’s overnight gains, which saw the S & P 500 close at a record high, sentiment in Asian Pacific markets was mixed. The Nikkei 225 in Tokyo increased by 0.26% and the Shanghai Composite Index decreased by nearly 0.37%. Hong Kong’s Hang Seng index and the Seoul Kospi increased by 0.36% and 0.55% respectively at 10.13 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 Wednesday, approximately 42.6% of Americans had been fully vaccinated, with 51.9% having received at least one dose. Since January, the number of new cases reported per day has decreased drastically, with 14,880 new cases and 424 new deaths reported on June 10.