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Stock Futures Trade Lower After Another Strong Month


1 November 2021

Today, futures in the United States and Europe are trading higher after stock markets ended October on a high note. The Nasdaq and S&P 500 both ended the month at all-time highs, with the Nasdaq posting its best monthly performance since November of last year. Investors should keep in mind that the Federal Reserve will meet this week, and payroll data for the previous month will be released as well. Today, stock traders will be analysing the ISM PMI data to see how purchasing managers see the U.S. economy shaping up in the coming months.

The Dow Jones Industrial Average increased by 5.80% in October, while the S&P 500 index increased by 6.0%. The Nasdaq, the tech-savvy index, gained 7.30%.

Stock Market

Along with monitoring the earnings by corporations, investors will be looking ahead to the U.S. central bank’s two-day meeting starting Tuesday. This meeting is important because the Federal Reserve is expected to announce that it is going to start winding down its quantitative easing programme, worth $120 billion in monthly bond purchases, aiming to eliminate it entirely before mid-2022. Investors will also be closely watching any remarks by the Fed regarding inflation, which seems to be rampaging through markets and hovering around the 30-year peak.

Another event that is likely to cause stock market volatility in the coming months is last month’s employment numbers, which are expected to have improved because of a decline in Covid-19 cases. It is forecast that 450,000 employees are likely to have been added to the labour force last month alone, dragging the unemployment rate down. Investors should look at the rise in wage inflation and how unemployment benefits have affected labour participation to understand how the labour market is likely to act over the next few months.

Broadly speaking, different sides of the financial markets are showing conflicting perspectives on economic recovery. Looking at the larger picture in equity markets, it seems like everything is going well and optimism is at its peak. On the other hand, when you look at treasury markets, you see that traders are concerned about surging consumer prices and the initiation of tapering.

As investors await this week’s FOMC meeting, treasuries in the United States have slumped. The volatility in fixed income markets suggests that investors expect a curb in economic growth, moving onwards, as rising inflationary pressures are forcing central banks around the world to bring back their lifelines extended in 2020. Although equity markets are at record highs, rising energy prices and supply chain constraints are adding onto inflation and restricting economic growth.

Cryptocurrencies

As per reports, the recent hike in cryptocurrencies was supported by interest from big institutional investors. Investment by whales is important because it brings some stability to the crypto markets, which are well known for their extreme volatility in prices. The weekly mean exposure by big investors surged to $724.4 billion, rising 0.25% since the start of October. Currently, there are nearly 16,156 such investors, expanding by 1.60%.

These large investors are becoming more optimistic regarding the future outlook of digital coins as their adoptability rises and their access to investors continues to improve.

Due to the recent change in market dynamics, these whales can clearly be seen changing their strategy from mere profit-taking to a wait-and-watch mode as these digital assets go more mainstream. In October, Bitcoin, the king of cryptocurrencies, achieved another record high of $67,000 after the launch of the first crypto-linked exchange traded fund.

Oil

Over the last few days, crude oil prices have somewhat gained support from rising stockpiles in the United States and news of negotiations between Iran and the U.S. regarding its nuclear programme. OPEC+ is set to convene this week as well. Although the cartel is under a lot of pressure to raise its oil production, the group is expected to proceed with its current plan, meaning no significant changes in supply, and rising pressure on oil prices going forward as well. On the other hand, as per Iranian officials, negotiations between the U.S. and Iran will resume by the end of this month. If the talks go well, oil exports by Iran may rise, pushing oil prices down.

Gold

Prices of the yellow metal dropped last week after treasury yields in the United States jumped because of a blazing inflation report released last week. The dollar also appreciated against other major currencies. Gold is taking a beating because a rise in treasury yields increases the opportunity cost of holding the precious metal and rising inflation makes it plausible for the central bank to hike its policy rate sooner than expected. The Fed’s statement later this week will be significant for gold because a tapering timeline is expected to be announced. Gold prices are likely to fall even further if the Fed adopts a more hawkish stance.

Geopolitical Tension

After tough discussions on climate change, during the G-20 summit, leaders were unsuccessful in reaching an agreement regarding local use of coal for manufacturing and power generation purposes. Currently, 44% of carbon emissions are owed to coal, and working on reducing coal’s consumption will go a long way towards decreasing global warming and building a sustainable future. However, the movement was not supported by countries like China, India, and Russia. Differences in perspectives on climate change, as well as other factors, pit the world’s two largest economies [KL1] against each other, causing uncertainty in global financial markets.

Asian Pacific Markets

China’s economic growth is expected to slow, according to the country’s most recent purchasing managers’ data. The country’s PMI index fell to 49.2, well below the critical 50 level. This shows a contraction in economic activity. Furthermore, the indicator for non-manufacturing activities such as services and construction also fell to 52.4. As of 11.37 p.m. EST, the Nikkei jumped 2.23%, and the Shanghai index rose 0.04%. The Hang Seng index, in Hong Kong, dipped 1.25%. The ASX 200 index surged 0.62%, and the Seoul Kospi hopped 0.48%.

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