Markets Update Wednesday 26/05/2021 – Central Banker Calming Effect

Frankfurt – 26/05/2021

Central Banker Calming Effect

In the USA, the spectre of inflation continues. Still, the leading US central bankers have recently spoken out predominantly in favour of continuing the Federal Reserve’s ultra-loose monetary policy. This had a calming effect on the market and today again supported technology stocks in particular.

Thus, there seems to be no immediate threat of trouble from the USA, which the European markets would not be able to escape as well. Since the economic recovery in Europe is lagging behind the USA, this means that the ECB is unlikely to change its monetary policy. 

This is precisely what ECB central bank director Fabio Panetta confirmed today. He said the bank would not be slowing the pace of its billion-dollar emergency bond purchases at this stage in its fight against the economic fallout from the Corona pandemic. “From my point of view, the conditions we see today do not justify reducing the pace of purchases,” Panetta told the Nikkei news agency in an interview published on Wednesday.

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As long as the US Federal Reserve does not move, the European Central Bank (ECB) will also stick to its current monetary policy, said investment strategist Max Kettner of HSBC Bank. It does not want to repeat its mistake of 2011 when it pre-empted the Fed with interest rate hikes. In the subsequent economic cycle, the Eurozone lagged behind the USA in terms of growth.

US Markets at a glance

On the New York Stock Exchange, investors regained some buying interest on Wednesday, especially tech stocks. The Nasdaq made up ground as interest rate concerns faded into the background.

The Dow Jones was marginally higher and hovered around the previous day’s level. In the end, the US leading index gained 0.03 per cent to 34,323.05 points. The NASDAQ Composite, on the other hand, moved into the profit zone. It gained 0.59 per cent to 13,738 points.

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Investor confidence continued to rise on the belief that the Federal Reserve and other central banks were still supporting the economy with their ultra-loose monetary policies. Earlier, worries circulated about tightening inflation that could have provoked a turnaround in interest rates. 

Far East Markets at a glance

The most important Asian markets were able to make gains today. Japan’s benchmark Nikkei index closed 0.31 per cent higher at 28,642.19 index points. On the Chinese mainland, the Shanghai Composite rose by 0.34 per cent to 3,593.36 points, while Hong Kong’s leading index Hang Seng was ultimately up 0.88 per cent at 29,166.01 points.

Investors are seemingly getting more comfortable with the expectation that monetary tightening was on the cards in the coming months. Although this would slow down the stock market, measures to curb inflation were not expected immediately, which supported the overall sentiment somewhat.

European Markets at a glance

The European stock markets trended lower on Wednesday, and the EuroSTOXX 50 closed 0.11 per cent weaker at 4,031.67 points.

The DAX opened the session on the Frankfurt Stock Exchange higher but fell below the 15,500-point mark later on. In the end, it showed minus 0.09 per cent to 15,450.72 units. The TecDAX, on the other hand, showed positive signs. It ended the trading session 0.21 per cent higher at 3,404.94 index points.

In the course of trading, the European stock exchanges had run out of steam on Wednesday. Meanwhile, fears of rising yields have eased somewhat, and investors trust in the central bankers’ latest statements that they won’t change policies any time soon.

Forex, gold, oil and crypto

The day before, the euro had risen to its highest level since the beginning of the year at 1.2266 dollars. However, in the middle of the week, the firmer dollar put pressure on the euro and pushed it back to 1.2190 US dollars on the foreign exchange market. Meanwhile, the Chinese yuan rose to its highest level against the dollar in almost three years. The market pointed out that the Chinese central bank is currently making no effort to counter the rise in the exchange rate. In recent months, China’s currency has benefited from the economic recovery of the world’s second-largest economy after the corona crisis.

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The stronger than expected fall in crude oil inventories in the USA supported oil prices today. Since last Friday, the price of US oil has risen by about 7 per cent and the cost of North Sea oil by about six per cent. Brent oil was trading at 68.89 US dollars in the evening, 24 cents more than the previous day. The price of WTI light oil from the USA rose by 18 cents to 66.25 dollars.

Falling bond yields, meanwhile, are making gold more attractive again. The precious metal rose by 0.3 per cent to 1,904 dollars per troy ounce, crossing the $1,900 mark for the first time in months. 

Cryptocurrencies continued their consolidation phase, moving a little higher today. Bitcoin traded in a range between $37,500 and $41,000 and is having a tough time cracking the $41,000 mark with a daily candle close. Once that level can be cleared, many stops will probably be flushed out, making the way free for further, sharper price increases. Ethereum ultimately lost 1.4 per cent to $2,700, while Cardano gained 2 per cent to $1.67 and XRP increasing 1.9 per cent to $0.98. 

Corporate and world economic news

Economic data

The Ifo export expectations for the industry in Germany fell in May to 23.0 points from 23.9 in April. “The very good mood among German exporters has received a small damper,” the Ifo Institute explained. “However, the export industry in Germany remains an important pillar for the industrial economy, which is doing well.” The automotive industry had to cope with a significant damper on export expectations. At the moment, hardly any new orders are expected from abroad. The same applies to the food industry. The foreign market also remains difficult for the textile and clothing industry.

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