Stock futures in the US are trading lower today despite the slump of the three US major indices in yesterday’s session amid fears of a curb in the rise in demand fuelled by the spread of the coronavirus delta variant. The risk off trade has brought more interest in lower risk assets such as the US Treasury bills. Basically, investors sought to hedge their risks by investing in government bonds. The 10-year treasury yield is still near its lowest level in nearly six months as a result of the shift.
The uptick in Covid cases around the world has investors wondering whether the strong economic recovery seen in the first half will continue in the coming months. Market sentiment and company valuations skyrocketed on the hope that the pandemic had ended with the development of effective vaccines. Economists have also revised their GDP growth rate in the second quarter of 2021 from 10% to 9.3%, taking into account changes in consumer spending and residential investment.
Stock Market
The S&P 500 and the Nasdaq composite fell 2.09% and 1.06% in yesterday’s session, respectively. The Dow Jones Industrial Average dropped 1.59% and posted its worst day since October.
Stocks of companies that are positively correlated with a successful reopening, such as cruise line operators and major airlines, took the brunt of the blow. Norwegian Cruise Line and Royal Caribbean both fell by nearly 5% and 4%, respectively. The stock price of United Airlines slumped 5.5%. The financial and energy sectors, which are affected by economic cycles, fell by 20.8% and 3.6%, respectively.
On the other hand, investors should keep in mind that the S&P 500 after yesterday’s drop is merely 3.1% below its peak last week. Furthermore, after breaking its 50-day moving average, the index recovered and settled above the key level before the closing bell rang, demonstrating investor confidence in the government’s ability to successfully address the rise in corona cases.
The government has also proactively put an end to unemployment benefits following a shortage of available labour. This would help fuel the expansion of small businesses, which would benefit the economy in the coming months. As a result, investors should view this situation as an opportunity to go shopping and score some great deals.
Stock traders should be on the lookout for clues about the economic outlook and the state of inflation at the FOMC meeting next week.
Cryptocurrencies
Bitcoin, the largest cryptocurrency by market capitalisation, is falling today again as investors continue to wonder when will the bulls return to the arena. The digital asset has broken through its key support level of $30,000, it is critical that the digital coin regains ground above the $30,000 level, as a significant breach could result in a massive technical selloff.
Having said that, crypto traders are well aware that the price action of cryptocurrencies is highly volatile, and the decline in prices should not come as a surprise given that similar price fluctuations have occurred in the past.
Bitcoin’s two-week relative strength index is approaching oversold territory, which has historically been followed by a strong price rebound. As a result, investors could consider seizing this opportunity to purchase digital coins at a discount and potentially profit in the long run, following in the footsteps of institutional investors who are devoting significant resources to this space.
Gold and the US Dollar
Gold prices remained unchanged yesterday as the strength of the US dollar was offset by a drop in treasury yields. The rise in the US dollar is because of a sooner than anticipated hike in interest rates as communicated by the Federal Reserve at its last FOMC meeting, while treasury yields have fallen as investors seek refuge from the bearish stock market.
A drop in yields lowers the opportunity cost of holding the non-interest bearing precious metal, whereas a rise in the value of the dollar usually results in a drop in gold prices. The two events helped to keep the price of gold stable at around $1,818. Traders should keep a close eye on the FOMC meeting next week to see if the hawks take control in the coming months.
Oil
On Tuesday, oil prices were somewhat stabilised following the retracement seen on Monday, when prices fell by nearly 7%. The selloff was triggered by an increase in Covid cases caused by the Delta variant, which is currently the most common strain in the majority of countries. Oil prices have fallen due to uncertainty about the future outlook of demand for oil, as investors fear the resumption of lockdowns and a boost in supply subsequent to the OPEC+ agreement.
Brent crude oil settled at $68.70 per barrel and U.S. West Texas Intermediate settled at $66.63 per barrel as of 12:08 a.m. EST.
The fight against the infamous virus is proving difficult due to the discrimination in the rollout of vaccines. Emerging countries are having difficulty obtaining vaccines for their citizens and establishing an effective immunisation programme. This allows the virus to mutate, resulting in the spread of new variants.
However, investors should keep in mind that the United States’ economy, the world’s largest buyer of oil, is rapidly recovering, as evidenced by restaurant bookings and domestic flights returning to pre-pandemic levels. This demonstrates that previous national lockdowns are unlikely to occur again.
Geopolitical Tensions
The United States and China are at odds again after the United States and its allies accused China of data theft and cyber espionage. According to the United States, these attacks, including the massive Microsoft Exchange breach, target both public and private enterprises. This would increase investor uncertainty and have a negative impact on stock market performance in the future if the situation deteriorates further.
Asian Stock Markets
Following a decline in economic growth, China has stuck with its prior one-year policy rate of 3.85% and five-year policy rate of 4.65%. The Nikkei 225 index in Japan fell 0.64% in morning trade, and the Shanghai Composite Index declined 0.50%. As of 11:51 p.m. EST, the ASX 200 index dropped 0.32%, while Seoul’s Kospi fell 0.44%. Hong Kong’s Hang Seng index dipped 1.00%.