Markets Update Wednesday 02/02/2022 – Inflated Europa

Frankfurt – 02/02/2022

Inflated Europa

The topic of the day today was the record-high inflation in the euro area, or rather its consequences for monetary policy. Exploding energy prices pushed inflation up to 5.1 per cent in January. This is more than expected, and the highest value since the statistics began in 1997, which puts the European Central Bank (ECB) in need of explanation shortly before its next interest rate meeting.

Actually, the ECB, which targets a rate of 2.0 per cent as the optimal value, has always spoken of a temporary phenomenon. Now there is already speculation about whether there will be a first increase in the key interest rate this summer. The rate has been at minus 0.5 per cent since September 2019.

Encouraging quarterly data, especially from Alphabet and the AMD chip company, lifted the mood. Interest rate concerns in the US also eased after surprisingly weak labour market data from America. This reduces the likelihood of the Fed’s rapid and drastic interest rate hikes, it was said on the trading floor.

US Markets at a glance

At midweek, the US stock markets showed their friendly side. The Dow Jones began the session slightly lower and turned positive in the session, ultimately closing 0.63 per cent higher at 35,629.33 points. The tech index NASDAQ Composite rose initially but fell back into the red at times. However, it then rebounded at the close of trading, ultimately ending with a gain of 0.5 per cent at 14,417.44 points.

The focus was probably clearly on corporate reports, and we are seeing strong results from big tech companies. But at some point, sentiment could turn back to macro data and the Fed.

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Before the start of trading, ADP labour market data was released, which was much weaker than expected. Thus, the US private sector lost jobs on a large scale in January, which came as a complete surprise.

Far East Markets at a glance

Many stock exchanges in Asia remained closed on Wednesday due to the Chinese New Year celebrations. 

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Because the Chinese Lunar New Year celebrations have begun, trading in China will be suspended all week. In Hong Kong, the stock exchange will remain closed up to and including Thursday; in South Korea and Singapore, up to and including Wednesday.

European Markets at a glance

There were hardly any changes in the European stock markets on Wednesday. The EuroSTOXX 50 gained at the start of trading and closed a marginal 0.08 per cent higher at 4,228.01 units.

The German leading index DAX was firmer at the opening and initially remained friendly. However, it finally gave up all its gains and closed 0.04 per cent lower at 15,613.77 points. The TecDAX also gained at the start and subsequently moved in green terrain. It finally gained 0.55 per cent to 3,524.05 points.

During the day, eagerly awaited price data from the eurozone were published, which turned out differently than expected: Inflationary pressure in the eurozone surprisingly increased in January. However, this did not weigh on prices. In the USA, the monthly labour market data of the service provider ADP were also on the agenda in the afternoon.

Forex, gold, oil and crypto

Speculation that the ECB will have to abandon its ultra-loose monetary policy sooner also supported the euro today. The common currency held above the 1.13 US dollar mark in the forex market until the evening.

The issue of inflation is also a major concern for consumers. Fuel prices, for example, continue to rise in Germany. The main reason for this is the high price of crude oil. A barrel of Brent is currently traded at 89.34 dollars, while WTI declined slightly to $87.64. Last week, US crude oil inventories surprisingly fell. 

Gold appreciated as well, rising well above the $1,800 mark and closing at $1,806 per barrel.

There was another red day on the cryptocurrency market, this time pushing Bitcoin below $37,000, a minus of 4.2 per cent on the daily. Ethereum slid 2.7 per cent to $2,700, while Binance Coin dropped 3.9 per cent to $368, and Solana fell by 7.6 per cent to $101. Cardano (ADA), after having a solid start to the week, fell by 5.2 per cent to $1.03, while XRP also declined, shedding 4 per cent to $0.6050. 

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Corporate and world economic news

Economic data

Inflation in Italy rose significantly at the beginning of the year. According to European calculations (HICP), consumer prices rose by 5.3 per cent in January compared to the same month last year, as the statistics office Istat announced on Wednesday after a first estimate. In December, the rate had still been 4.2 per cent. Economists, however, had expected the rate to fall to 4.0 per cent. The Italian HICP rate thus reached its highest level since the introduction of the euro. The inflation rate, which is calculated according to the national method, rose to 4.8 per cent. This is the highest rate since 1996. The most vital price driver remains the cost of energy. But food prices also rose significantly. The inflation rate in Italy is thus still somewhat higher than in the eurozone as a whole, where the inflation rate rose to a record 5.1 per cent in January.

The US private sector unexpectedly lost jobs on a large scale in January. The labour market service provider Automatic Data Processing Inc (ADP) reported that 301,000 jobs were lost compared to the previous month. Economists surveyed by Dow Jones Newswires had predicted a gain of 200,000 jobs. The bottom line was 776,000 jobs in December, 31,000 fewer than initially reported.

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