Futures in the United States are trading higher today, indicating positive investor sentiment after Federal Reserve Chair Jerome Powell reiterated the Fed’s dovish monetary policy stance. Despite admitting that rising inflation is a concern for the Fed, the central bank continues to maintain that it is likely to be temporary and will fall as the supply chain adjusts.
Stock traders are closely watching macroeconomic reports to see how the Fed will react to the shifting dynamics. Investors are looking forward to seeing the updated unemployment situation by examining the new report on jobless claims, which will be released today.
The Federal Reserve’s yearly stress test reports are also set to be released today. The report depicts how banks would react to hypothetical economic crises. Following the test, the banks declared how much capital they could release for stock buybacks and dividends.
The Bank of England (BOE) will also meet today to provide an update on monetary policy. Investors are waiting to see if the BOE will follow the Fed’s projections and raise interest rates to combat rising inflation, or if it will remain unchanged. Investors should remember that inflation reached 2.1%, the highest rate recorded since the pandemic began.
Stock Market
On Tuesday, the Fed Chairman restated the Fed’s dovish stance on monetary policy. He stated that the central bank will attentively examine the economic situation before implementing any changes to its current policy. The chair’s visit follows the turmoil produced by Fed officials last week, who moved back the projected schedule for interest rate hikes from 2024 to 2023. Stock traders are waiting for information on when the Fed will begin to reduce its monthly bond purchases of $120 billion, which have been boosting the economy since the coronavirus pandemic began.
Following the appearance of Jerome Powell, the stock markets had been on a two-day winning streak before declining in yesterday’s session. Despite Wednesday’s dip, the three major indices are up more than 1% this week. Yesterday, the Nasdaq, the tech-savvy index, jumped 0.13% after setting a new all-time intraday high on Tuesday. The Dow Jones Industrial Average dropped 0.21% and the S & P 500 declined 0.11%.
Tesla
Tesla stock rose nearly 5.3% in yesterday’s session, allowing the company to reclaim its 50-day moving average for the first time since the beginning of May. The stock has found support near the 200-day moving average. Tesla is staging a comeback for the first time since April.
Bitcoin
As a result of increased crackdowns around the world, digital currencies have recently come under scrutiny. China, in particular, has been at the forefront of the surge in strict controls, causing Bitcoin to struggle to reclaim its prior highs.
The price of Bitcoin was very volatile on Wednesday when it crossed the $34,000 mark early in the day before dropping to nearly $32,000 again. The price of the digital currency fell below the $30,000 mark on Tuesday, which is its lowest level since the start of 2021. Bitcoin peaked at nearly $64,000 in April and has since been on a downward trend.
However, not all is bad, as institutional investors continue to be interested in cryptocurrencies and are developing solutions that will allow their investors to trade in digital currencies as well. This phenomenon is exemplified by Blockchain Capital’s ability to raise $300 million in capital from industry titans such as Visa and Paypal. This shows investor confidence in Bitcoin’s future, and the price reduction will just be an opportunity for all parties to invest at a discount.
Forex
Last week, the dollar index rose as much as 2.1% after the Fed surprised markets by announcing two interest rate hikes in 2023 on June 16. According to Powell, inflation is rising due to the rapid economic recovery, which has caused the index to lose nearly one-third of its gains. He also predicted that price pressures would ease in the future.
Gold
Gold prices surged on Wednesday, after Powell’s appearance before the House of Representatives. The chair stated that the central bank will not raise the policy rate before reviewing hard facts rather than just looking at the sentiment in the markets. Furthermore, inflation will not be the sole determinant of interest rate choices.
Despite the chair’s positive comments, the precious metal failed to recover from a 6% drop last week because investors were concerned about monetary tightening.Spot gold rose 0.48% to $1,775 per ounce at 11.26 PM EST.
Oil Demand
Brent crude hit $76 per barrel, its highest level since 2018, due to increased demand as people resume travel due to a decline in Covid cases following efficient vaccination programmes. Oil supply is also dwindling, driving up prices. Cushing, Oklahoma, the delivery point for US crude futures, saw its stockpiles fall by 1.8 million barrels to their lowest level since March 2020. The fall in the value of the US dollar has also pushed up the price of petroleum, making it more affordable for customers holding foreign currencies.
The price of Brent has jumped by nearly 45% this year because of limitations in supply as decided by OPEC+ countries and rising demand fuelled by the ease of lockdowns and declining coronavirus cases. As per industry experts, the price of crude oil is likely to cross $100 per barrel for the first time since 2014.
Geopolitical Tension
The United States, in response to alleged human rights violations in China, has declared a ban on key solar items manufactured in China. The region has been criticized for forced labor practices. Factories in Xinjiang manufacture the majority of polysilicon, which is an important input for electronics and solar panels. Officials in China have negated the allegations made, claiming that it is merely a move by the US to target prospering companies.
President Biden’s aggressive actions are likely to spark a conflict between the two superpowers, as well as create financial market uncertainty, potentially harming investors.
Dow Jones
Many blue chip stocks in the Dow index rose by nearly 1%. Goldman Sachs, Walt Disney, and American Express were among the best performers, while Honeywell, Salesforce, and Visa were among the laggards.
Asian Stock Markets
Following a halt in the S&P 500’s two-day winning streak, Asian stock markets have struggled to find a direction and are mixed today.
The Nikkei 225 index in Japan rose 0.04% in morning trade, while the Shanghai Composite Index fell about 0.15%. As of 12:29 a.m. EST, Hong Kong’s Hang Seng index was up 0.08%, while Seoul’s Kospi was up 0.36%.