Futures in the United States are trading higher today after the Dow Jones Industrial Average declined 0.92% in yesterday’s session. The index fell following the release of a highly anticipated ADP jobs report which fell short of expectations, setting a gloomy tone ahead of the non-farm payroll data set to be released on Friday.
According to the ADP report, 330,000 new jobs were added in July, compared to the 695,000 predicted. The majority of the new jobs were created in the service sector. The rate of new job creation has slowed to its lowest level in nearly five months. The data supports the notion that peak growth is most likely behind us. Investors should closely monitor non-farm payroll data to gain a better understanding of the current macroeconomic situation in the United States.
The findings of the Institute for Supply Management’s services report served as yet another eye-opener for investors. Although the report showed that the services sector was growing strongly and that the findings exceeded initial projections, it also highlighted deteriorating material and labor shortages. Many factors that contribute to labor shortages, include childcare responsibilities, high unemployment benefits, highly contagious Delta virus, and skill mismatches.
This added to stock traders’ already-existing concerns about the outlook for economic recovery and rising inflation in the coming months. More importantly, investors are attempting to decipher what these figures mean for the fed’s monetary policy and the timeline for tapering bond purchases. Having said that, the amplified competition for labor by businesses will support a significant growth in wages, which will positively affect consumer spending in the future.
Bank of England
Investors should note that the Bank of England (BOE) is scheduled to publish its monetary policy statement today and it is expected that it will keep its interest rate and bond purchase program unchanged. The interest rate is currently at an unprecedented low of 0.1%. The United Kingdom has recovered from much of its 10% drop caused by the pandemic’s onset and is on track to post the highest growth in economic recovery, rivalling that of the United States.
Nearly 70% of the adult citizens in the United Kingdom are already fully vaccinated and restrictions on social distancing are being swiftly relaxed. The quick recovery has in turn contributed to rising inflation, which jumped to 2.5% in June, well above its 2% target. Many policymakers have interpreted these reports as indicating the need to reduce some of BOE’s stimulus.
Despite the quick economic recovery, officials at the central bank fear a sharp rise in unemployment as benefits are withdrawn by the end of September and covid cases rise with the rapid spread of the ill-famed delta variant. BOE officials have stated that they would soon release guidance on how they plan to phase out the massive bond purchases and raise the policy rate. Investors in the US can use this guidance as a proxy for how the Federal Reserve would react in coming months.
Robinhood
Robinhood has been in the news since its initial public offering (IPO) last week, when it fell short of expectations. The Robinhood platform, which has no commissions and is very user-friendly, is popular among retail investors who use it to pump and dump meme stocks. However, nobody expected the company to become a meme stock in and of itself. The company’s stock price closed at $70.39 in yesterday’s session, giving it a market cap of $58.9 billion.
The boost in the stock price happened following an increased interest in the company on social media and after the availability of options tied to Robinhood’s shares. The push from retail investors propelled the company’s valuation above even that of big names such as Ford. Momentum around Robinhood picked up after well-noted investors such as Cathie Wood of Ark Investment purchased the company’s shares.
Cryptocurrencies
Crypto enthusiasts should be relieved that with each passing day, more and more institutional investors and regions are showing continued interest in the development of the blockchain space. The latest entrant to the playing field is a French asset management company called Melanion Capital. The company is a computer and derivatives-driven fund manager that is expanding its operations into digital assets after receiving approval from the French regulator.
The company plans to launch a European Union regulated fund that tracks the price of Bitcoin through a basket of nearly 30 shares that are closely correlated to the benchmark of digital coins. The fund would charge a 0.75% fee to its consumers and will be listed on Euronext in Paris. Potential investors should take the exposures by large corporates as an early indicator of the huge potential that digital coins have.
Gold
The price of gold initially rose in response to the weak ADP jobs report, but then fell in response to the strong ISM services report. Because of the rapid growth in the services sector, traders are wondering when the Fed will begin to reduce its bond purchases, with some experts expecting the Fed to act as soon as September. As a result of this development, the dollar index rose. Investors should keep an eye on non-farm payroll data to get a better picture of the economy’s current state.
Oil
Oil prices have plummeted over the last three days, reaching a two-week low on Wednesday. The uptick in crude oil inventories represented a growth in supply, while the outlook for oil demand remains uncertain due to the rapid spread of the coronavirus delta variant. According to the Energy Information Administration (EIA), oil inventories increased by 3.6 million barrels in the week ending July 30, compared to a 3.1 million barrel decline predicted by a Reuter’s survey. As of 11:21 p.m. EST, Brent crude oil was trading at $70.69.
Asian Markets
As of 11:20 p.m. EST, the Nikkei was up 0.37% while the Shanghai Composite Index declined 0.12%. The ASX 200 index jumped 0.22% and Seoul’s Kospi slumped 0.07%. The Hang Seng index in Hong Kong hopped 0.10%.