Futures in the United States and Europe are trading lower today, following a drop of nearly 382 points on the Dow Jones Industrial Average in yesterday’s session. The release of FOMC meeting minutes on Wednesday, which communicated a more hawkish view of the massive stimulus being provided to the U.S. economy, caused a drop in sentiment. It was revealed that the majority of policymakers believe that the current $120 billion in monthly bond purchases could be phased out in 2021.
The Dow Jones Industrial Average dropped 1.08%, and the S&P 500 index declined 1.07%. The Nasdaq, the tech-savvy index, fell 0.89%, and the Russell 2000, the small-cap index, decreased 0.84%.
The Fed’s ultra-easy monetary policy, which has been in effect since 2020, has provided support to financial markets by driving down bond yields. Because of lower returns on these bonds, investors have shifted to riskier assets such as equities, which typically provide higher returns. The shift toward a tighter monetary policy, on the other hand, indicates that the central bank is unlikely to provide the same level of liquidity to investors in the near future.
Over the last week, economic data from the United States, Europe, and China has suggested that the rate at which major economies have been recovering in recent months is slowing. In this context, despite stock market highs, investors are struggling to gain momentum to achieve higher gains.
However, stock traders should be aware that nothing is set in stone. The United States’ economy has a long way to go before resuming pre-pandemic levels of activity. In addition, on the pandemic front, cases have been steadily growing in many countries, including the United States. This indicates that the Federal Reserve will most likely monitor the situation and its potential effects on the economy before making a final decision.
Robinhood
Robinhood reported $565 million in revenue in the second quarter, according to earnings released yesterday. It more than doubled its revenue in the second quarter compared to the first. The company’s financial performance was heavily influenced by cryptocurrency activity.
Crypto trading generated $233 million in revenue for Robinhood, accounting for more than half of all transaction-based revenue. This increased the company’s crypto revenue share from 17% in the first quarter to more than 51% now.
Despite the boost in earnings, Robinhood’s share price fell as the company warned investors of a drop in trading activity in the coming months. This would have a negative impact on company profits. Furthermore, stock traders are unsure whether the volatile digital currencies can be long-term drivers of earnings.
Oil
Oil prices have been falling for the last five days and fell nearly 1% on Wednesday. Concerns about dampening demand expectations as a result of an increase in coronavirus cases worldwide have contributed to the drop. The rise in the dollar index following the release of the FOMC meeting minutes yesterday has added to the downside pressure.
The U.S. dollar index rallied upwards to 0.1%, its highest mark since April. As crude oil is priced in dollars, oil prices move opposite to the dollar index. So, when the American dollar appreciates in value, oil becomes more expensive for international buyers. This pushes oil prices down with the appreciation of the U.S. dollar.
The fall in prices was hindered, to some extent, by a decline in crude oil inventories last week. Stockpiles dropped 3.2 million barrels, settling at 435.5 million barrels. This is the lowest level of oil inventory since January 2020.
Gold
Gold prices are trading lower as traders digest the Fed Minutes, but the current move may reverse later in the day when Initial Jobless Claims data will be released.
The rise in the dollar index following the release of the FOMC meeting minutes has caused the precious metal to fall. The appreciation of the dollar, like in the case of oil, has made the yellow metal more expensive for foreign buyers, resulting in the downward correction that traders witnessed yesterday. Gold prices will be influenced in the coming weeks by expectations and speculation about Fed tapering and what officials may say about the matter at the Jackson Hole symposium.
Asian Markets
Investors in Asia have also been proceeding with caution following the market reaction to the FOMC meeting minutes in the United States. Technology and financial stocks supported the rebound of the Hang Seng index, which fell heavily on Tuesday. Similarly, CSI 300 in China also jumped 1.2% following the heavy selloff over worries relating to further regulatory crackdowns on technology companies.
The Nikkei declined 0.69%, while the Shanghai Composite Index was down 0.71%. The ASX 200 index dropped 0.39%, and Seoul’s Kospi fell 1.14%. The Hang Seng index in Hong Kong has declined 1.80%.