Stocks Slide for the Second Day amid Inflation Concerns

U.S. stocks and futures showed their rise on Tuesday.

The dollar weakened, and oil increased in price as investors weighed the risks to the economic outlook, including inflation and a spike in Covid-19 cases in various countries. The Stoxx Europe 600, a composite index of the region’s largest companies, rose 0.45 percent to 438.55 points. Thus, the indicator renewed its record high of 437.23 points set last week. Many tech stocks crashed on Monday, but the NASDAQ 100 did not. One aspect that is probably causing the NASDAQ 100 not to correct so strongly overall at the moment is related to the different valuations and the allocation of the index. The NASDAQ 100 is a very selected and concentrated index. As a result, the development that hits many tech stocks does not necessarily make itself felt here, at least as long as the FAANG stocks do not drop more sharply. Stock indices in the Asia-Pacific region rose in trading on Tuesday, 18th of May. This is partly because investors began buying stocks that had fallen in price after the recent fall in world markets amid continuing pessimism about the pandemic of coronavirus, according to reports from the Associated Press.

The rebound in the dollar that followed better-than-expected inflation data last week also faded as traders believe the U.S. Federal Reserve will keep rates low. The results of the Federal Reserve April meeting, which preceded last week’s surprise inflation data, are due on Wednesday, 19th of May, and they will be the next benchmark for market participants to understand how the central bank thinks.

At the trading on May 18th, Brent crude oil rose to $70 per barrel for the first time since March. Experts attribute the growth of commodity prices to the restoration of the world’s demand for fuel as mass vaccination progresses, and quarantine restrictions in several countries are lifted.

Stocks were rising and falling more than one percent over the few days after a record high at the beginning of May due to renewed flare-ups of coronavirus cases in countries including India.

The dollar is holding near year-to-date lows against major currencies as inflation-conscious traders await the minutes of the U.S. Federal Reserve’s meeting. Although Fed officials stress that the jump in inflation is a temporary phenomenon, market participants fear that the central bank will raise rates earlier than expected.

Stocks Slide for the Second Day

U.S. stocks and futures in 2021

It may take longer for U.S. economic activity to resume than it did during the coronavirus pandemic amid continuing risks to inflation and employment, according to Federal Reserve Vice Chairman Richard Clarida. According to him, if demand continues to exceed supply, and inflation rises above the Federal Reserve 2% target, the regulator will take action immediately. However, he expects the rise in consumer prices to be temporary in the face of renewed economic activity.

Analysts at BlackRock, the world’s largest asset manager, don’t believe the Fed will change course anytime soon. According to Jean Boivin and his team, the acceleration of inflation has materialized, and volatility in the markets is increasing as the economic reset gains momentum. This is consistent with their view that the economy is “resetting.”

The value of bitcoin fell below $45,000 for the first time in almost three months after the founder of electric car maker Tesla, Elon Musk, did not rule out the possibility that the company may sell or has already sold its bitcoin assets. Shares of the cryptocurrency exchange CoinBase fell in price to a record low on the 17th of May. At the peak of the decline, the price reached $238.25 from the previous closing level of $258.37 (-7.8%). This is the first time since the stock went public that the price has fallen below the initial coin offering (ICO) level ($250).

Gold made a new 4-month high on Monday, approaching $1,870 as the U.S. dollar sold off, and Treasury yields fell.

According to the forecast of Christopher Lyafemina, the plans of the Chilean parliament to pass the bill, assuming an increase in royalties on copper sales, will seriously hamper investment in the country by foreign companies. This law will make it less profitable to launch new projects, which will cause a reduction in copper supply and an increase in copper prices to the benefit of Asian copper miners.

Highlights of the week:

  • The Federal Reserve expected to publish the minute from its April meeting Wednesday. The publication may show what the regulator’s representatives mean by “temporary” inflation and how they view the increasingly positive U.S. economic statistics.
  • S. commercial oil reserves according to EIA report on Wednesday (their level affects the price of petroleum products, which, in turn, affects inflation)
  • Louis Fed President James Bullard and Atlanta Fed President Rafael Bostic to speak at different events Wednesday
  • IMF Managing Director Kristalina Georgieva and ECB President Christine Lagarde are presenting their ideas at the Vienna Economic Dialogue Thursday
  • Report on Australia unemployment rate expected on Thursday
  • Eurozone finance ministers and central bank chairpersons to exchange ideas during the informal meeting. A group meeting of the EU finance ministers and central bank governors on May 22nd.

Here are some of the major movements in the markets:

Stocks

Futures on the S&P 500 Index increased 0.4% as of 8:36 a.m. London time.

The Stoxx Europe 600 Index gained 0.7%.

The MSCI Asia Pacific Index raised 1.7%.

The MSCI Emerging Market Index gained 1.5%.

 

Currencies

The Bloomberg Dollar Spot Index low 0.3%.

The euro gained 0.4% to $1.2196.

Pound sterling gained 0.4% to $1.4196.

CNY (onshore – RMB traded within Mainland China) gained 0.2% to 6.428 per dollar.

JPY strengthened 0.2% to 108.99 per dollar.

 

Bonds

The yield on 10-year Treasuries fell by less than one basis point to 1.65%.

The yield on two-year government bonds was unchanged at 0.15%.

The 10-year yield in Germany rose by one basis point to -0.11%.

The 10-year U.K. yield rose two basis points to 0.883%.

Japan’s 10-year yield rose less than one basis point to 0.086%.

 

Commodities

Intermediate crude oil from West Texas increased 1% to $66.92 per barrel.

Brent crude oil rose 1% to $70.15 per barrel.

Gold gained 0.2% to $1,869.94 per ounce.

 

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