Market Overview

15 September 2021

Inflationary Pressure in the U.S. Has Eased, Markets Remain Nervous

Stock markets continue to behave with agitation in the course of the current week, as most investors are still hesitantly awaiting the meeting of the Federal Reserve (Fed) next Wednesday, which may become a kind of risky turning point for the prevailing sentiment. The threat of money stimulus tapering, which may be announced as starting as early as October or in December, is expected to be pretty limited so that it may  not change the disposition dramatically. Also it generally has to be digested and assimilated by the markets beforehand, and yet some single-minded bulls are nervous. 

The official data on U.S. consumer inflation published this Tuesday could partially relieve these concerns, but this is not certain. The consumer price indexes (CPI) increased but less than forecasts showed. The so-called core CPI, which climbed 0.1% from the previous month and 4.0% annually compared with August 2020, presented the most noticeable surprise. The core CPI is a measure of change in prices for the whole spectrum of goods and services, but excluding food and energy resources, and the average expectations of a wide expert community polled by Bloomberg previously were 0.3% monthly surplus and 4.2% annual increase for the core CPI indications, respectively. 

Some adjustments for the core inflation indicators, compared to a 0.3% monthly pace and especially too high 4.3% annual growth, which actually took place for July, was predicted, but the inflationary reality was even closer to being moderate. Similarly, the same economists in the Bloomberg survey pre-estimated that a 0.4% month-by-month increase in the overall CPI and a 5.3% gain from a year earlier could follow the indications that showed a 0.5% monthly pace and a 5.4% annual price gain for July. The actual data for the overall CPI in August were also slightly lower in case of a 0.3% monthly indication, but exactly corresponding to the expectations of a 5.3% for the annual measurement. 

Considering all the above figures collectively, and adding to this a survey of the Federal Reserve Bank of New York, which showed on Monday that consumers may expect inflation levels to reach as much as 4.0% over the next three years, a possible conclusion is that the Fed's Open Market Committee has at least some fundamental ground at the moment to not be in too much of a hurry to put tapering into motion. A lower-than-expected figure of 235,000 newly created non-farm jobs released at the very beginning of the month may add arguments to the piggy bank of dovish opinions once Fed officials begin to debate how and when to begin tapering asset purchases. 

All this keeps hopes alive for the longer operation of the Dollar printing press. Especially since the frontman of the Fed, Jerome Powell, mentioned during the Jackson Hole symposium at the end of August that the U.S. central bank may start to reduce its monthly bond purchases pace this year, yet he was not so kind as to give any specific schedule and also did not propose even the original volumes of tapering. Previous tapering processes began with the Fed firstly reducing the purchase of Treasury bonds from $80 billion to $60 billion when it felt the exit gate from the crisis of 2008-2009 was near at hand. 

Cherishing a similar possible scenario for the rest of 2021, the majority of the market first rushed up to a 4488.80 resistance peak on the S&P 500 broad market index immediately after the publication of CPI reports. After that, it tried to quickly go down to test a 4445.80 previous low of the week and it made a temporary decline to reach the 4435 area. Finally, the S&P 500 rebounded back to a 4445 former support before the end of the volatile Wall Street's session, and later it even succeeded to touch the higher levels up to 4454 and 4457 local peaks today on futures trading in Asian and European hours. 

Some focus is now also on uncertainty over an upcoming increase in corporate taxes proposed by the U.S. White House team, as a potentially positive for the markets which is estimated to create a $3.5 trillion budget package, which is said to include a negative portion of quite possible corporate tax rate hike to 28% from 21%. At the same time, even the Democratic congressional representatives insist that the tax hike should be limited by a maximum limit of 26.5%, it could be made only for the big companies and also be more stretched in time by implementing step by step until 2025-2026. Anyway, this mixed agenda is going to keep the markets on their toes, too. 

Among corporate news, which also left its mark on a moderate decline of Wall Street's major indexes, it would be worth highlighting the partially upheld claim made by Apple Store application developers against Apple, as some of them were allowed to place their own alternative links inside applications. Oracle also released a weaker report than in the previous two quarters, as the company's revenue declined in the face of tougher competition for cloud space. However, the scale of the cumulative effect of these particular cases has yet to be assessed by the market before the end of the nervous week.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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