During the last few weeks, stock traders have been attempting to understand the extent of the economic recovery in light of the Fed’s dovish stance on inflation, peak valuations, and differences in global economy performance due to different vaccination programmes.

Traders in Europe are also picking up the momentum from Asia where most of the markets have traded in negative territory primarily due to the economic data out of China.

In early Wednesday trade; Asian markets were mostly lower as investors reacted to China’s publication of inflation data. Despite a Reuters poll anticipating an increase of 8.5%, China’s producer price index grew by 9% in May compared to the same month a year ago. In May, China’s consumer price index increased 1.3% over the same month a year ago, less than the 1.6% expected in a Reuters survey.

Not everything is negative because some traders are a bit optimistic due to the World Bank’s new growth projections. It forecasted that the global economy will grow by 5.6% in 2021 yesterday which is a positive sign for today’s trading session if traders decide to focus on more optimistic side of things.

Stock Market

The Dow Jones Industrial Average decreased by 0.09% whilst the S&P 500 index increased by 0.02%. Nasdaq, the tech heavy index, increased by 0.31% and the small cap Russell 2000 index also increased by 1.06%.

What is important to note is that volumes on the NYSE and Nasdaq increased yesterday compared to Monday’s trading session. The Nasdaq index also posted higher-than-average volumes for the fourth time in the last five sessions. This means that the trading volumes on stock markets are likely to turnaround as they have been below average in the last three months.

Upcoming Monetary Policy

Cleveland Fed President Loretta Mester confirmed one again that many traders believe that job increases in May were “good” but not enough to shift monetary policy. Remember that the nonfarm payroll jobs increased by 559K last month, which would be a good improvement in normal circumstances, but still lower than 671K new jobs forecasted by Dow Jones for the economy to accelerate out of the current crisis. Despite the improvement, Mester believes payroll growth falls short of the Fed’s “substantial further progress” requirement before it begins to normalise policy from excessive easing.

The Cleveland’s Fed President’s comments gives us an early indication how the Fed members are thinking and there are clues what we could be getting from the upcoming Fed meeting which is taking place next week.

Inflation

According to Mester, current inflationary pressures should not be a cause for concern, despite the fact that it has lifted the Fed’s preferred inflation measure to a year-over-year rise of 3.1%, exceeding the central bank’s 2% target.  According to her and other officials, the price increase is only a temporary result of supply-side factors, which will eventually subside.

 

Focus on ECB Meeting

Ahead of the upcoming ECB meeting which is going to take place tomorrow, traders are looking at the recent economic data out of Europe and trying to guess what the ECB will make out of this. For instance, the Economic Sentiment Index fell from 84 to 79.8 in the previous month; this was well short of expectations of 86.0.

Traders should understand that the data shows that that the economic recovery is taking place and the decrease in expectations is mostly because of better assessment of the economic situation. It is also now back at pre-crisis levels.

Dow Jones

Many blue chip stocks in the Dow index rose by nearly 1%. IBM, Honeywell, and Chevron were among the best performers with IBM increasing by 1.18%, while Verizon, Amgen, and Intel were among the laggards.

Asian Stock Markets

The Asian Pacific markets are in a slump today. The Nikkei 225 in Tokyo decreased by 0.29% and the Shanghai Composite Index increased by nearly 0.12%. Hong Kong’s Hang Seng index declined and the Seoul Kospi decreased by 0.17% and 0.19% respectively at 10.39 PM EST.

Coronavirus Update

The United States has been successful in controlling the outbreak of cases due to an effective vaccination programme. According to the CDC, as of Wednesday, approximately 42.3% of Americans had been fully vaccinated, with 51.7% having received at least one dose. Since January, the number of new cases reported per day has decreased drastically, with 13,542 new cases and 401 new deaths reported on June 08.