Stock futures are trading somewhat flat on the final trading day of the week, and there is a possibility of some bargain hunting taking place today. But overall, it is not a stretched statement to say that the bears have seized control over the three major indices, as all of them are set to close in negative territory for this week.
This is mainly due to concerns about slower economic growth in the upcoming period as compared to the previous ones. In addition to this, we have also witnessed some weakness in the economic numbers as well this week. The weekly unemployment claims report in the US, released on Thursday, also showed a potential slowing in the labor market, with applicants filing for unemployment benefits increasing to 373,000, compared to 350,000 expected last week.
In addition to this, we also have flaring geopolitical tensions between the two superpowers, the US and China. For instance, the Biden administration is ranching up tensions between the countries by bringing more Chinese under the so-called blacklist. Of course, these actions are likely to be met with a similar reaction from China, as Beijing isn’t going to turn its other cheek after such an event.
Moving away from geopolitical tensions, something that investors should keep in mind is that those overblown inflation concerns have started to ease off significantly this week around the globe. The recent Chinese consumer price index for the month of June didn’t see much of an increase, coming in at 1.1%, against the forecast of 1.3%. We can also see an echo of this message in the US and in Europe as well and this means that there isn’t any pressing need to adopt ultra-hawkish monetary policy by the policy makers, which should be positive for the global stock market.
The Dow and S&P 500 declined by 0.75% and 0.86%, respectively, while Nasdaq fell 0.72%, breaking its four-day winning streak.
Sharp fluctuations in government bond markets preceded stock market declines. Bond yields move inversely to bond prices. The yield on the U.S. 10-year Treasury note fell by 0.02% and stabilised at 1.29%. The benchmark bond yield is a significant factor in borrowing costs for both households and businesses. The drop in the benchmark bond yield has put it on track for its most significant weekly drop since June 2020, and it is currently at its lowest level since February 2021.
Investors should be aware that markets are currently experiencing a reallocation of assets. People are reducing their exposure to risky assets and investing more in government bonds, which provide safer returns.
The cryptocurrency markets were not immune to the decline in investor sentiment. Bitcoin’s price fell yesterday as investors began to reduce their exposure to risky assets, as uncertainty about the future outlook grew. The notorious assets are famous for being extremely volatile, and stock traders are currently shifting their focus to safer assets such as treasuries. Bitcoin is currently worth nearly $33,000.
Having said that, institutional investors are still showing an increased interest in digital currencies and will most likely take advantage of this opportunity to acquire digital assets at a discount. Bank of America is the latest financial powerhouse to enter this domain, with plans to begin cryptocurrency research coverage. Similarly, Goldman Sachs announced in May that it would open a cryptocurrency trading desk and offer bitcoin derivatives.
Gold and the U.S. Dollar
Gold prices are set to post three consecutive weeks of gains, as the dollar index continues to lose more momentum. As mentioned earlier, there are less concerns about an overtly aggressive monetary policy stance by the Fed and this is causing a sell-off in gold prices. Gold prices have recovered nearly 30% of their sell-off. This happened on the back of first signs of aggressive jawboning by the Fed, a few weeks ago that pushed gold from its highs of 2,075 to 1676.
Moving forward, the key data point which investors will be looking at more closely will be the US CPI number, which is due next week. Remember, CPI numbers do not have the same strength that they were showing earlier this year and another feeble reading is going to rubber stamp the view that the Fed will only gradually taper their monetary policy.
In terms of technical price action, it seems that 1676 is the most critical support for the gold price, and in the coming months, we will see if this support is going to be challenged or not. The likely chances are that for now, the deep sell-off for the gold price is over.
Oil prices are trading very flat today as investors digest the US crude inventory data which showed a steeper decline in crude and gasoline supplies. However, it is worth noting that the price of Brent is nearly $3 lower than it was on Monday.
Brent crude oil futures settled at $74.12 per barrel, gaining 0.94%, and U.S. West Texas Intermediate futures settled at $72.94 per barrel, surging 1.02%.
OPEC was supposed to talk about reducing oil production cuts and its future strategy. Commodity traders should keep in mind that due to failed talks between OPEC and its allies, including Russia, the supply of oil could skyrocket. The possibility that the cartel will abandon output limits adds to the ever-increasing uncertainty.
Asian Stock Markets
The Chinese economy, like the U.S. economy, is expected to slow in the coming years. The Chinese government declared on Wednesday that it is willing to reduce bank reserve ratio requirements to pump money into the economy. Investors should be aware that this could be a sign of slower-than-expected GDP growth in the second quarter of 2021.
The Nikkei 225 index in Japan dropped 1.88% in morning trade, and the Shanghai Composite Index declined nearly 0.69%. As of 12:47 a.m. EST, the ASX 200 index declined 1.47%, and Seoul’s Kospi had decreased 1.59%. Hong Kong’s Hang Seng index jumped 0.65%.