Optimism from investors returned to financial markets, but the situation still remains uncertain

The US stock indices closed in the green zone yesterday. All three indices increased steadily at the end of the day. The biggest gain was shown by Dow Jones, which increased by 1.62%. The S&P 500 added 1.52% and the Nasdaq increased by 1.57%. Optimism has returned to the markets a little, but the situation is still uncertain. On the one hand, many economies are showing good signs of recovery. On the other hand, a new wave of coronavirus could slow these growth rates and lead to new lockdowns. In the meantime, investors are looking for profitable opportunities in stock markets, as there are practically no investment alternatives today. As long as the Fed's monetary policy remains unchanged, indices will continue to rise. But in August, there will be a new meeting of the Fed, and traders should be very careful, because firstly, the Fed is going to cut the QE program, and secondly, August and September are statistically very weak months for the indices.

The European stock market ended Tuesday's trading on the positive side, despite the rise in the Delta strain cases in Europe. Yesterday, the spokesperson of the French government, Gabriel Attal, said that it’s the fourth wave of the COVID-19 pandemic in their country. The UK government lifted all domestic restrictions related to the coronavirus starting from Monday. The UK Prime Minister Boris Johnson said that he intends to require nightclubs and event organizers in England to allow only fully vaccinated visitors in from the end of September.

The American Petroleum Institute (API) data, published on Tuesday, indicated an increase in crude oil stocks by 806,000 barrels in the US over the previous week. This is another reason why oil quotes started to decline, and supply started to catch up with demand. Japan, which is the world's 4th largest importer of oil, cut oil imports by 1.2% in annualized terms. The US crude oil weekly inventories data will be released today. Increased reserves can lead to a further decrease in oil quotes.

The price of gold and silver is highly correlated (inverse correlation) with the US Treasury bond yields. Yesterday, government bond yields increased in price, which caused the fall of gold. But the current US monetary policy has a negative effect on the government bond yields. That's the reason why investors are confident that the prices for precious metals will continue to rise, at least until the Fed meeting in August.

Yesterday, the deputy governor of the Bank of Japan said that the economy might grow faster than expected if the coronavirus vaccination accelerates. But the current situation in Tokyo, which is hosting the Olympics, shows that the number of infection cases has increased, forcing the government to declare a state of emergency in the city and impose new restrictions. On the other hand, Japan's exports have been increasing for four months in a row. The shipment of transport equipment abroad increased by 68.1%. The export of semiconductor components increased by 24.7%, machinery - by 42%, steel and steel products - by 73%. This indicates a gradual recovery in global trade.

Main market quotes:

S&P 500 (F) 4,323.06 +64.57 (+1.52%)

Dow Jones 34,511.99 +549.95 (+1.62%)

DAX 15,216.27 +83.07 (+0.55%)

FTSE 100 6,881.13 +36.74 (+0.54%)

USD Index 92.96 +0.07 (+0.08%)

Important events for today:
  • – Japan Monetary Policy Meeting Minutes at 02:50 (GMT+3);
  • – Australia Retail Sales (m/m) at 04:30 (GMT+3);
  • – US Crude Oil Inventories (w/w) at 17:30 (GMT+3).

by Justforex, 2021.07.21

We advise you to get acquainted with the daily forecasts for the major currency pairs.

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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