Futures in the United States are mixed today, while those in Europe are higher after the stock markets in the United States gained ground last week and closed in the green. The stock market rally occurred in response to corporate earnings that came in higher than expected. Investors should pay attention to earnings calls going forward to understand how companies see economic growth unfolding in the coming months. Today, investors will be watching industrial production data to see if economic activity is improving or not. The Dow Jones Industrial Average gained 1.58% last week, while the S&P 500 index gained 1.82%. The Nasdaq, the tech-savvy index, hopped 2.18%.
Inflation
Moving forward, the main issue that markets are likely to face is uncertainty about the future outlook for inflation. With consumer prices still soaring and energy prices rising, and a power crisis looming, manufacturing activity is likely to be severely impacted. Blackouts could impede manufacturing activity, further complicating an already strained supply chain. Similarly, rising energy prices could drive up the cost of inputs for businesses, making commodities more expensive to produce and eventually pass through to consumers. Furthermore, with the tapering of the Fed’s massive stimulus programme is set to begin in the coming months, expectations for economic growth remain hazy, which is why consumer sentiment has suffered.
Recent events have caused stock traders to question the Fed’s “transitory” narrative, as an easing of rising inflation remains to be seen. On the other hand, while interest rates can only go up from here, the Fed is unlikely to change policy rates in the short-term. Instead, the Fed will closely monitor the situation and will likely make a move when the macroeconomic situation settles.
A similar scenario can be seen in England, where consumer prices have been rising at an uncontrollable rate in recent months. Andrew Bailey, Governor of the Bank of England, stated that the central bank will have to intervene to stop rising inflation and warned that an increase in energy costs could cause inflationary pressures to persist. Hence, stock traders should expect volatility in markets in the near future, as central banks grapple with when and how they could start winding down their quantitative easing measures initiated in 2020.
Economic Reports
Consumer spending was predicted to fall, but Americans are generally upbeat as the holiday season approaches. Retail sales have been steadily increasing, and in September they increased by 0.7%, despite forecasts for a 0.2% decline.
Cryptocurrencies
Crypto bulls have been driving Bitcoin prices up in recent days, and on Friday they shattered the $60,000 level on hopes that US regulators are on the verge of approving a futures-based exchange-traded fund (ETF). Such an ETF will pave the way for greater adoption and investment in the digital sector.
Investors have been waiting for the Securities and Exchange Commission (SEC) to make a decision on an ETF, and the first American Bitcoin futures ETF is expected to begin trading this week. A product like this will provide traders with another way to gain exposure to the trillion-dollar digital sector. Because of the high demand for a Bitcoin ETF, its creation is inevitable. Furthermore, officials and regulators now have a better understanding of the mechanics of cryptocurrencies than ever before, and the SEC is beginning to make sense of how digital money is reconciled, stored, and secured. As a result, it can now see how these assets can aid in the transition of traditional finance to the next level.
Oil
As restrictions imposed by the coronavirus pandemic are lifted, demand for oil rises, while supply remains constrained. The Biden administration stated that it would lift travel restrictions, which will boost airline fuel demand. As a result, crude oil prices jumped above $85 per barrel on Friday. Similarly, as a result of coal and gas shortages, as well as a looming power crisis, demand for oil has accelerated, driving up prices even further. Oil inventories in the United States, on the other hand, have diminished. Moving forward, it will take an increase in production by OPEC+, improved weather conditions during the winter season, and the use of strategic petroleum reserves to limit the rally in oil prices.
Gold
Gold prices have also retraced after treasury yields and the dollar index fell on fears of rising inflation, despite the Fed’s near tapering of its massive stimulus. Although the labour market in the United States has improved significantly, supporting the Fed’s decision to begin winding down its quantitative easing measures, policymakers are struggling to control inflation, making a timeline for interest rate hikes uncertain.
Asian Markets
China has struggled to create a positive narrative for its economy in recent months, with bad news following bad news. As per the latest data, Chinese GDP for the third quarter has dropped to 4.9% because of lower growth in industrial activity in September. The expected growth in GDP was 5.2%. Industrial activity was expected to rise by 4.4% in September, but it only expanded 3.1%. Retail sales, on the other hand, increased 4.4% in September, exceeding the 3.3% rise predicted.
As of 11.39 p.m. EST, the Nikkei dropped 0.28%, and the Shanghai index slumped 0.39%. The Hang Seng index, in Hong Kong, dipped 0.46%. The ASX 200 index surged 0.16%, and the Seoul Kospi dropped 0.07%.