Markets Update Friday 18/06/2021 – Inflation Witches

Frankfurt – 18/06/2021

Inflation Witches

Newly rekindled interest rate concerns weighed on the markets today. The triple witches sabbath fuelled market volatility even more.

For years, investors had settled into the zero interest rate world. Now, however, interest rates could soon rise again if the economy grows too rapidly and inflation picks up too significantly. On Wednesday evening, the Federal Reserve (Fed) announced the end of the zero interest rate era. The first interest rate hikes could take place in 2023. Previously, such a step was not expected until 2024. 

Some leading central bankers are apparently not satisfied with this. James Bullard of the St. Louis Fed described inflation as stronger than expected and pleaded for a turnaround in interest rates as early as next year. He told the CNBC television station that the upswing that began after the Corona crisis was also associated with increased inflation risks. Therefore, Bullard said, it would be wise to start tightening monetary policy as early as 2022.

US Markets at a glance

Wall Street’s indices fell sharply at the end of the trading week.

The Dow Jones opened with a loss and was down 1.58 per cent to 33,290.08 points by Wall Street’s close. The NASDAQ Composite started weakly and remained in red territory. In the end, the tech index lost 0.92 per cent to 14,030.38 index units.

However, there were no significant economic data or corporate events on Friday. Nevertheless, prices slipped on the day of the big expiry (Tipple Witches Sabbath). On such expiration days, share and index prices can fluctuate noticeably because larger fund or asset managers try to move the prices in the direction they want at the expiration of contracts. 

In late trading, statements by Fed member Bullard that the US central bank could raise interest rates as early as next year exerted even stronger downward pressure.

Far East Markets at a glance

The Asian markets showed a mixed performance. In Tokyo, the Japanese benchmark index Nikkei ultimately fell by 0.19 per cent to 28,964.08 points. The Shanghai Composite on the Chinese mainland fell by a marginal 0.01 per cent to 3,525.10 points by the close of trading. Hong Kong’s Hang Seng, however, gained 0.85 per cent to 28,801.27 points.

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In the USA, tech stocks finally went into positive territory yesterday. This was now also evident in Hong Kong in particular. 

European Markets at a glance

The European stock markets fell significantly before the weekend. The EuroSTOXX 50 extended its small initial loss in the further trading course and finally went into the weekend 1.80 per cent lower at 4,083.37 points.

The DAX then significantly extended its initially small loss and fell below the 15,500 marks. At the close of market trading, it was down 1.78 per cent at 15,448.04 points. In addition, the TecDAX started with a small gain but turned negative in the further course of trading and closed 0.53 per cent lower at 3,489.37 points. The MDAX also turned negative and ended the day 0.58 per cent weaker at 34,022.58 points. In Friday trading, it had even reached a record high of 34,388.62 points.

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The losses were related, among other things, to the expiry of futures and options on stock indices. On the major expiration days, the struggle for expiration prices can often lead to increased market volatility.

Forex, gold, oil and crypto

After some sharp price losses on the two previous days, the euro continued to weaken somewhat on today’s foreign exchange market. In New York, the euro was last traded at 1.1876 US dollars. 

Oil prices rose again on Friday after the losses of the previous day. This was the fourth consecutive weekly gain for oil prices. Growing optimism about the recovery of the global economy after the Corona crisis is supporting the market. Higher growth in the global economy leads to stronger demand for crude oil. The price of a barrel of Brent crude rose by 58 cents to 73.65 US dollars. The US WTI oil price even increased by 94 cents to 71.98 dollars.

The gold price recovered somewhat at first after it had plummeted to $1,770 in the past two days. However, at Wall Street close, it had fallen even lower, closing at $1,764.20 a troy ounce.

Cryptocurrencies also continued to slide lower, with most selling pressure occurring during the NY session once again. At day’s end, both Bitcoin and Ethereum had dropped 7 per cent to $35,500 and $2,210, respectively. Other top altcoins slid between 5 and 8 per cent as well, for example, XRP losing 5.8 per cent to $0.80 and Cardano shedding 5 per cent to $1.41.

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Corporate and world economic news

Economic data

Producer prices in Germany rose strongly in May, significantly exceeding forecasts. According to the Federal Statistical Office, German producer prices increased by 1.5 per cent compared to the previous month. The last time prices rose this much was in the run-up to the financial and economic crisis in July 2008. Economists had forecast a rise of only 0.7 per cent.

The retail sector in Great Britain suffered a surprising decline in sales in May. Compared to April, sales fell by 1.4 per cent, the statistics office ONS announced in London on Friday. Analysts had predicted an increase of 1.5 per cent.

The eurozone’s current account surplus rose in April for the first time after three consecutive declines. According to the European Central Bank, the current account balance showed a positive seasonally adjusted balance of 23 (March: 18) billion euros. The trade surplus increased to 27 (24) billion euros, with exports rising to 207 (202) billion euros and imports to 180 (178) billion euros. The balance of services was positive at 8 (8) billion euros.

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