European and US stock futures are trading mostly higher today, as traders are feeling relieved following the release of a highly awaited US inflation report. The data showed that the rapid surge in consumer prices over the last few months has flattened out now. As per the labor department, consumer prices for the month of July grew 5.4% on a year-on-year basis, and grew 0.5% from the same in June.
The Dow Jones Industrial Average jumped 0.62%, and the S&P 500 index hopped 0.25%. The Nasdaq, the tech-heavy index, declined 0.16%, while the Russell 2000, the small-cap index, grew 0.49%.
Stock Market
The decline in the rapid rise of inflation plays perfectly into the “inflation is transitory” narrative that the Fed has been feeding markets over the last few months. Core inflation is considered to be a more reliable metric used by economists as it excludes food and energy prices, which are much more volatile than other goods in the basket. Core inflation has increased by 4.3% on a year-on-year basis and by a mere 0.3% in July. Based on these findings, it is clear that inflation is not on an uncontrolled rampage.
The inflation report comes amid heated discussions regarding the tapering of massive bond purchases, which have seen money pumped into the markets and have helped save the economy from the 2020 slump. The major concern is whether the central bank will start withdrawing its stimulus before the markets’ expected timeline.
Fed Chair, Jerome Powell has stuck to his notion that the surge in inflation is short-term, but other officials have given more hawkish views on the subject and have expressed the need for the Fed to start considering reigning in its massive stimulus over the next few months. Morgan Stanley has also revised its forecast for tapering to December 2021. For now, the movement in stock markets shows that investors are considering the improvement, or at the very least a stoppage in the rapid rise of consumer prices, as a promising sign for the outlook of financial markets in the short term.
Unemployment Claims Data
Moving onwards, investors should closely watch the unemployment claims data scheduled to be released today. The claims are likely to decline and would support the strength in payroll data witnessed last week. Having said that, if jobless claims unexpectedly rise, the economy may take more time to recover and be bullish regarding the policy rate.
Bitcoin
Crypto investors have seen a steady rally over the last few weeks. They have seen Bitcoin prices significantly decline and even test the crucial $30,000 level before rallying upwards again. It is currently trading above $46,000. Recent data shows that an important shift is taking place in the crypto world right now, where institutional investors are showing an ever-increasing interest in the blockchain space that has been historically dominated by retail investors.
Neuberger Berman, a fund that manages nearly $430 billion in assets, has become the latest player to enter into the crypto sector. It is looking into offering its investors’ exposure to Bitcoins and other altcoins without actually having to own them directly. The entity has started to allow investments through crypto derivatives such as ether futures and through other trusts and ETFs as well. As per a company representative, cryptocurrencies would help in enhancing investors’ portfolios as digital coins have a relatively lower correlation to other traditional assets.
Oil
Traders should note that the White House called for the OPEC+ countries to boost oil production to support a strong global recovery. They pleaded that the markets would ensure stable energy supplies and that the deal executed in July was simply not enough as demand for oil would only grow in the coming months. Over the last few months, consumer energy prices have surged in the United States as the economy reopens. The Biden administration is looking into any illegal activity that could be pushing oil prices up.
Following the request by Washington, oil prices declined early Wednesday. Futures for Brent, the crude oil benchmark, settled at $71.44 per barrel after jumping 1.15%. Similarly, the West Texas Intermediate crude settled at $69.25 per barrel, advancing nearly 1.36%.
Gold
Gold prices showed strength on Wednesday following the release of a dovish inflation report. The surge in consumer prices was broadly in line with expectations and hence has likely bought gold traders more time before the inevitable tapering of the Fed’s stimulus. The data would force the central bank to wait and watch upcoming reports more closely before making a firm decision relating to its monetary policy.
The fall of the dollar index from its highest level in nearly four months and a decline in treasury yields further boosted confidence in the yellow metal. As a result, the opportunity cost of holding the asset has decreased. Gold is currently trading at nearly $1,751 per ounce as of 11:24 p.m. EST.
Asian Markets
As of 11:26 p.m. EST, the Nikkei was up 0.20% while the Shanghai Composite Index was down 0.13%. The ASX 200 index jumped 0.09% and Seoul’s Kospi hopped 0.08%. The Hang Seng index in Hong Kong is trading flat.