Markets Update Thursday 15/07/2021 – Unprecedented Inflation

Frankfurt – 15/07/2021

Unprecedented Inflation

The mood on the global stock markets has clouded over. With his statements in the House of Representatives, US Federal Reserve Chairman Jerome Powell was apparently only able to calm the financial markets briefly. Investors continue to worry about high inflation. If inflation does not fall, the Fed will have to take countermeasures with a tighter monetary policy. In June, consumer prices rose by 5.4 per cent, the strongest increase in 13 years. Powell reiterated that the high inflation rate is temporary and will ease “in the months ahead”.

But at a US Senate hearing on Thursday, Fed Chairman Jerome Powell conceded that this historically “unprecedented” inflation was higher than the Fed “or anyone” had expected. It was not associated with a hot labour market, as in previous economic cycles. Instead, “a shock went through the system” with the reopening, pushing inflation well above the Fed’s two per cent target: “Of course, we’re not relaxed about it.” As long as inflation drags on against expectations, the risks would have to be further assessed.

US Markets at a glance

On the US stock exchanges, the indices developed unevenly on Thursday. While the Dow Jones made it into the profit zone late in the day and exited trading with a slight gain of 0.16 per cent at 34,987.75 points, the NASDAQ Composite fell back by 0.70 per cent to 14,543.13 index points.

After the recent record chase, prices now came back somewhat. Experts see increasing signs of a weakening of the US economy. In addition, the exceptionally high inflation is depressing investors because if contrary to expectations, it does not fall in the foreseeable future, the US Fed might have to take countermeasures with a tighter monetary policy. Current economic data, however, painted a very mixed picture.

On the corporate side, the reporting season continued, with Morgan Stanley, among others.

Far East Markets at a glance

Asia’s markets failed to find a common direction on Thursday.

In Tokyo, the Japanese benchmark index Nikkei ultimately lost 1.15 per cent to 28,279.09 points. However, the Shanghai Composite was up on the Chinese mainland, gaining 1.02 per cent to 3,564.59 index points. Meanwhile, Hong Kong’s leading index Hang Seng gained 0.75 per cent to 27,996.27 points.

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As expected, the Chinese economy gained significant momentum in the second quarter. The corona crisis seems to be over in the Middle Kingdom, and the economy is regaining its old strength. The economy grew by 7.9 per cent from April to June. This was also estimated by analysts beforehand. In the first quarter of the year, however, the growth rate was even higher.

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European Markets at a glance

Europe’s markets posted heavy losses on Thursday. The EuroSTOXX 50 extended its early loss in the day and closed 1.05 per cent lower at 4,056.39 points.

The German stock market also fell significantly today. The DAX significantly extended its initial loss in the further trading course and closed 1.01 per cent lower at 15,629.66 points. The same trend was seen in the TecDAX, which ultimately ended the day at 3,617.35 points, a loss of 0.76 per cent.

On the corporate side, Daimler and Siemens Energy were in focus. While the German carmaker was surprisingly in the black, the energy giant was forced to revoke its earnings forecast.

Fears of rising inflation once again drove investors to Europe’s stock exchanges. The corona situation was also a cause for concern. 

Forex, gold, oil and crypto

After its latest attempt to stabilise, the euro weakened again on Thursday. In New York trading, the common currency last cost 1.1805 US dollars. A series of US economic data gave the “greenback” a slight boost against other currencies. For example, the Empire State Index, which measures business sentiment in the New York region, climbed surprisingly strongly to a record level in July.

Speculation on the increase in production and supply depressed oil prices. According to commodity market experts, Saudi Arabia and the United Arab Emirates (UAE) have agreed on a compromise on future production policy. However, the UAE energy ministry has denied this. Brent oil from the North Sea fell by 57 cents to 74.18 US dollars per barrel, while WTI light oil fell by as much as 61 cents to 72.52 dollars.

The gold price remained stable and only fluctuated slightly intraday, closing almost unchanged at $1,829 per troy ounce.

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The cryptocurrency market traded in a narrow range, mildly depressed for the most part. Bitcoin ultimately lost 3.1 per cent and is currently trading at $31,800, while Ethereum shed 4.4 per cent to $1,925. The only top 10 digital asset posting slight gains today was Binance Coin, rising 2 per cent to $316. XRP and Cardano held at their previous day’s levels at $0.61 and $1.23 per coin. The biggest loser was once again Dogecoin, dropping 8 per cent to $0.18.

Corporate and world economic news

Economic data

After a record starts to the year, China‘s economic growth slowed somewhat in the second quarter. The second-largest economy behind the USA grew by 7.9 per cent year-on-year from April to June, as the Beijing statistics office announced on Thursday.

Unemployment in Great Britain rose slightly in May. Compared to April, the unemployment rate rose from 4.7 to 4.8 per cent, as the statistics office ONS announced in London on Thursday. Analysts had expected a stable rate on average. However, in the three months from March to May, it fell by 0.2 points compared to the previous period.

The number of new claims for unemployment insurance benefits in the United States declined significantly in the week ending 10 July, reaching the lowest level since mid-March 2020, before the corona crisis hit the labour market. Compared with the previous week, claims fell by 26,000 to 360,000 on a seasonally adjusted basis, according to the US Department of Labor in Washington. Economists had predicted a decline to 360,000.

In the New York metropolitan area (USA), manufacturing business activity surprisingly rose to a record high in July. The index compiled by the Federal Reserve Bank of New York rose to 43.0, the highest level ever. Economists surveyed by Dow Jones Newswires had forecast a reading of only 17.3. In the previous month, the index had been plus 17.4.

US import prices rose noticeably in June, although the momentum weakened. The rate of increase was 1.0 per cent compared to the previous month after a plus of 1.4 per cent in May. 

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