The Dow Jones and S&P 500 stock indices declined on Tuesday, moving back from last week’s record highs, while the Nasdaq increased to a new high. The US ISM Services PMI fell from 64 to 60.1 points, indicating a slight slowdown in the economic recovery. The main problems with the business recovery are caused by inflation, logistical problems, raw materials, and personnel shortages. Investors are also closely watching the situation in the oil market. Oil is usually denominated in the US dollars, and the United States is the largest exporter of fuel. Oil had increased in price for foreign partners, which led to the increased demand for the US currency. The growth of the US currency is reflected in the growth of the dollar index, which in turn affects major stock indices.
At the same time, the US airlines Southwest Airlines Co and American Airlines Group Inc. are forced to delay or cancel flights due to technical problems and staff shortages amid recovering demand for domestic flights. Since the COVID-19 pandemic began, the US airlines have received $54 billion from the government to cover their employee costs. One of the conditions for obtaining financial aid was that the companies would not cut jobs. But the companies did the opposite and convinced tens of thousands of employees to retire earlier or take a leave. Now, the airlines are recruiting staff again.
The pharmaceutical market has its own news. The US biopharmaceutical company Alexion Pharmaceuticals is one step away from buying British company AstraZeneca. At the same time, shares of BionTech and Pfizer fell sharply yesterday due to a decline in the effectiveness of their vaccine. A study in Israel showed that the vaccine began to lose effectiveness in preventing the delta strain of COVID-19 in recent weeks.
The European stock market closed in the red zone yesterday. Statistics published the day before showed an increase in retail sales in Europe to the maximum value for the year. But the volume of orders in the industrial sector in Germany decreased by 3.7%, which was a surprise to analysts. Index of economic sentiment also unexpectedly decreased not only in Germany but throughout Europe too. In its turn, Deutsche Bank announced the launch of a new set of indices for tracking 21 currencies of the developing countries.
Oil prices decreased more than by 2.5% due to OPEC+ disagreements. OPEC+ representatives failed to agree on plans to increase production to meet the rising demand for fuel. The United Arab Emirates did not support a proposed six-month extension of limitations on production. No date for resumption of negotiations has been announced yet. This situation plays in favor of further growth in oil prices, as the supply does not keep up with the growing demand. Now, analysts are sure that the price of $100 per barrel is just a matter of time.
The US Treasury securities significantly increased yesterday, which triggered gold and silver to fall in prices, as these precious metals have an inverse correlation with the government bond yields. The fundamental picture is now in favor of precious metals prices going up, but investors are waiting for the FOMC minutes release to evaluate the Fed’s further plans. If the monetary policy remains unchanged, the yields of government bonds will start to fall again, which will lead to an increase in gold prices.
The COVID-19 delta strain outbreak is having a negative impact on Asian economies. Investors are concerned about the rapid spread of the virus. Australia is extending restrictions in major cities and asking people to stay home. Schools are switching to remote learning. This situation is negatively affecting the business climate, in particular, the transportation sector and restaurant companies are struggling the most. Investors are also concerned about China’s harsh measures against technology companies.
Main market quotes:
- S&P 500 (F) 4,343.54 -8.8 (-0.20%)
- Dow Jones 34,577.37 -208.98 (-0.60%)
- DAX 15,511.38 -150.59 (-0.96%)
- FTSE 100 7,100.88 -64.03 (-0.89%)
- USD Index 92.54 +0.32 (+0.35%)
- Europe Economic Forecasts (q/q) at 12:00 (GMT+3);
- US JOLTs Job Opening (m/m) at 17:00 (GMT+3);
- Canada Ivey PMI (m/m) at 17:00 (GMT+3);
- US FOMC Meeting Minutes at 21:00 (GMT+3).