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08.07.2021 11:59 AM
Overview of the US market (07/08/2021)
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US stocks rose on Wednesday despite hints that the Federal Reserve may tighten monetary policy sooner than expected. Dow Jones and S&P 500 climbed approximately 0.3%, while Nasdaq remained the same. Obviously, tech stocks, like before, reacted nervously to reports of tightening policy.

But what did the Fed minutes really say? According to members, they were generally surprised by the spike in US inflation, but there were no immediate proposals to change policy because most of them believe that the surge is temporary, and that inflation will shrink again in the coming months. That being said, they did not consider the issue of stopping or reducing support programs, although by their meeting in July, the topic will be raised again and perhaps, they may decide to cut back on stimulus.

In another note, the oil market fell yesterday, posting a $ 2 price decrease after OPEC reported that they failed to agree on a production deal. Brent dropped 6% ($4.5) and amounted $ 73.

But oil demand in US exceeded supply, said the American Petroleum Institute (API). Latest data indicate that US reserves fell 8 million bpd over the week, which is twice stronger than expected. This is actually good news because it does not only signify demand growth, but also supports oil in terms of price. The US Department of Energy predicts oil demand to grow further by 5.3 million bpd in 2021, and then by 3.7 million bpd in 2022. Meanwhile, supply will increase in Iran and Venezuela, in addition to the 0.4 million bpd production increase from OPEC, which will start in August.

As for Asian markets, they also displayed a decline this morning because apparently, investors perceived the possible policy change of the Fed as a threat. China indices slipped by as much as 1.2%, while Japan indices decreased 0.8%. This may be a signal for the beginning of correction in the US market.

With regards to the world's epidemiological situation, latest data say the increase in COVID-19 cases was 430,000 on Wednesday, which is still below record high. 32,000 of it came from Britain, while 17,000 came from Spain. In US, the number of new infections was 16,000.

Going back to the markets, S&P 500 closed at 4.358 points yesterday and ranged from 4.310 - 4.380 points. Leading the growth was Apple, which saw a 1.8% gain in its stocks. Analysts say the main reason is increased demand for iPhones.

Aside from that, investor sentiment was also influenced by the data on economic optimism, which, according to the IBD, fell to 54.3 in July. And today, sentiment will be driven by the upcoming report on US employment, which will be released at 12:30 UTC.

Unsurprisingly, the dollar index rose to its highest level since early April, thanks to high US inflation and expectations of a policy change. The USD index hit 92.70 points yesterday and ranged from 92.20 - 93.20 points.

Accordingly, USD/CAD also grew in price and traded at 1.2540. It is expected to fluctuate around 1.2470-1.2600. The decline in oil prices also set off the weakening of loonie against dollar.

Conclusion: The US market is in strong shape and may continue to rise. However, it needs a good correction, probably around 5% so that investors will gain new levels for purchases.

Jozef Kovach,
Analytical expert of InstaForex
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