During yesterday's session, the current US Treasury Secretary and former Fed Chair Janet Yellen brought a lot of nervousness to the market. First, she indicated that interest rate hikes are possible because the fiscal packages are large enough to overheat the economy, and then she retreated from this statement.
This caused momentary turmoil in the stock markets, which first seemed to fall in response to fears of a money price hike, only to then return to the upside. We could still see a positive sentiment today, with the indices returning to gains.
US stock futures on Wednesday rose slightly after Tuesday's declines. The Nasdaq Composite fell nearly 2 percent, its worst performance since March, amid a broader market sell-off led by the technology sector.
Risk appetite was supported by statements from Treasury Secretary Janet Yellen, who said she sees no problem with inflation, for now, downplaying her earlier comments that rate hikes may be necessary to keep the economy from overheating.
In terms of macroeconomic data, Friday's NFP, or U.S. labor market data, may be key for monetary policy considerations. In the bond market, the yield on the 10-year Treasury note fell to 1.56 percent on Tuesday from the more than two-week high reached last Thursday at 1.69 percent.
The main currency pair will not push past 1.20?
In the foreign exchange market, the euro held steady at $1.20 in the first week of May, falling from the previous week's two-month high of $1.215. The Eurozone PMI survey showed that private sector activity grew at a faster pace in April as service activity returned to growth, while data released on Monday showed that retail sales in Germany rose in March by the most since May 2020.
Last week, GDP data showed that the eurozone entered a double-dip recession in the first quarter, and consumer prices rose in April by the most in two years. Despite the favorable outlook for the Eurozone, however, it appears that the outlook is even better for the US, hence EUR/USD may struggle to rise above 1.20-1.21 on a sustained basis, and it may be more likely to hold at 1.18-1.17.
Oil: prices up, inventories down
On the other hand, crude oil prices seemed to rise on Wednesday, hitting near 2-month highs, in hopes of a return to normal demand in the United States after a systematic lifting of restrictions and progress in vaccination. API data showed U.S. crude inventories fell by 7.7 million barrels last week, the biggest drop since October.
Investors in the global oil market have already pointed to improving demand sentiment, with OPEC expecting a strong recovery in consumption in the second half of the year. On an optimistic note, the European Commission unveiled plans to allow people who are fully vaccinated to travel within the EU.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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