Futures in the United States are flat today while those in Europe are down after President Joe Biden favored continuity over change in leadership by nominating Jerome Powell for his second term as chairman of the Federal Reserve. Following the news, stock markets reacted in a mixed manner, with the Dow Jones Industrial Average closing in the green while the Nasdaq and S&P 500 losing ground.
Today, investors will be digesting service and manufacturing PMI data coming out of Europe, England, and the United States. These figures inform stock traders about how purchasing managers expect their respective economies to perform in the coming months.
In yesterday’s session, the Dow Jones Industrial Average surged 0.05%, while the S&P 500 index dipped 0.32%. The Nasdaq, the tech-savvy index, slumped 1.26%.
Stock Market
Stock market indices initially rose after Jerome Powell’s nomination, as investors then expected that the Fed would stick to its initial plan and timeline for tapering while working on combating record-high inflation. Stock traders feared Lael Brainard’s nomination because she is considered a dove, and hence her loose stance on monetary policy could have meant consumer prices rising even further. However, treasury yields also continued to climb after the announcement, capping any additional gains and causing indices to turnaround.
Although President Biden’s decision is more hawkish, the overall agenda of Washington is to increase jobs and reduce unemployment levels in the country. Hence, moving onwards, it is more likely that the U.S. government’s next moves will likely be targeted at adding more jobs to the U.S. economy as opposed to suppressing inflation. This is why Brainard was a good candidate for the crucial Fed position, as she would have been relatively more patient in lifting interest rates than Jerome Powell has been. However, eventually, President Biden decided to favor continuity and continue with a 30 year tradition of going with the last President’s choice to direct the Fed.
With President Biden’s nomination behind us, trading activity in stock markets is expected to quiet down as investors get ready for Thanksgiving Day on Thursday. Markets are likely to remain stable in the coming days. Having said that, tomorrow the Fed will release its latest minutes and investors will also be looking at the personal consumption expenditure (PCE) price index as well. PCE is a gauge of inflation and is an important factor for the Federal Reserve in deciding its upcoming monetary policies.
Furthermore, rising coronavirus cases in Europe are also becoming a cause of concern for investors, with Germany raising its restrictions and Austria implementing lockdowns. Having said that, thanks to effective vaccination drives by the U.S. government, the likelihood of lockdowns in the United States is very low. This is evident from the fact that travel for the Thanksgiving holiday is expected to be the highest since the pandemic began in 2020.
Cryptocurrencies
Over the past few days, Bitcoin, the king of cryptocurrencies, has been dropping from its all-time highs. Investors are selling off their exposures because Bitcoin has seen about a 20% correction from its peak levels achieved just a couple of weeks ago. Similarly, Ethereum has also slumped nearly 8% from its highest price, last witnessed on November 10.
On the other hand, investors should note that although prices of well-known digital coins are falling, there are alternative coins that are not only holding their ground but have flourished over the past few days. The reason behind this is that these coins usually represent a specific narrative and offer solutions to problems faced in the traditional finance world. Crypto.com’s coin, CRO, is an example of such a digital coin, which has been successful in becoming the 13th biggest cryptocurrency in terms of market capitalization. This increase in the price of CRO occurred after Crypto.com announced that it will replace Staples as the primary sponsor of the Los Angeles Sports Center.
Oil
In the coming weeks, markets should expect some volatility in crude oil markets as big economies are trying to ease rising oil prices by tapping into their strategic petroleum reserves (SPR) and enhancing their oil production levels. According to President Joe Biden, the United States is getting ready to announce tapping into its SPRs as early as Tuesday. The effort being made by the United States is in union with South Korea, India, and Japan. As per reports, Beijing is also considering releasing crude oil from its SPR.
The call to action comes after OPEC+ and Russia, after repeatedly being requested to increase their crude oil supplies, have failed to tweak their initial production plans, causing havoc in markets around the globe. With no discernible improvement in the situation and inflation continuing to rise, the United States is considering releasing 35 million barrels to meet rising demand. This move by the United States could push OPEC+ into a corner and force it to rethink its future production plans or risk losing a share of the market.
Gold
The precious metal was no exception to the volatility witnessed after Chair Jerome Powell’s nomination. Due to a relatively more hawkish stance that the Fed Chair holds, the dollar index surged to 96.548, up from below 95.4 last week. Treasury yields for the 10 year bond also jumped to 1.629% and yields for the 30 year bond hopped to 1.971%. As a result, gold prices dropped nearly 2% yesterday.
Asian Pacific Markets
Because the growth of the economy in China has slowed down in the second half of 2021, Beijing is facing the conundrum of deciding whether to ease its policies to accommodate markets. The issue at hand is complex, and the decision is not as easy as it seems. This is because, although economic growth is slowing down, the Yuan, China’s legal tender, is soaring due to historical trade surpluses and factory gate prices are rising.
As of 12.53 a.m. EST, the Nikkei surged 0.09% and the Shanghai index jumped 0.43%. The Hang Seng index, in Hong Kong, dropped 1.01%. The ASX 200 index rose 0.84%, and the Seoul slumped 0.53%.