While record highs are reported from the U.S. stock market from time to time, seven consecutive months of gains for the S&P 500 seem to be very impressive. During this time the main American index rose from 3690 to 4540 points.
The impressive run may have contributed to the sharp rise in U.S. stock futures on Wednesday. The S&P 500 appears to owe its seven-month rally to solid corporate earnings, soft Federal Reserve policy, economic growth prospects and coronavirus vaccination numbers. Markets are now turning their attention to generally upbeat economic data, including the August labor market report and manufacturing PMI.
The Dow Jones managed to book 1 percent to the upside in August; the Nasdaq added 4 percent and it was the third straight month of gains and the S&P 500 rose 3 percent, marking the seventh straight winning month and the longest streak since December 2017.
OPEC+ decision could result in oil deficit
Today, however, the most important event seems to be the OPEC+ decision. Brent crude oil futures appear to have risen more than 0.5 percent to near $72 a barrel on Wednesday, rebounding from a 0.8 percent decline in the previous session. The cartel is expected to stick to its plan to increase output by 400,000 barrels a month by December despite U.S. calls for stronger production increases and OPEC data that indicate the market will face a deficit by the end of 2021. Among other reasons, it may take longer for Gulf of Mexico refineries to reopen after Hurricane Ida damage due to power outages in Louisiana, also a consequence of the hurricane.
Will the ECB pre-empt the Federal Reserve?
In the currency market, the EUR/USD starts September at $1.18, nearly its highest level in more than three weeks. Investors shed dollars after Federal Reserve Chairman Jerome Powell signaled that interest rate hikes are not imminent as there is still a lot of work to be done before the economy reaches full employment. Around the same time, European Central Bank Governing Council member Robert Holzmann said that the ECB should start considering scaling back its emergency bond purchases (PEPPs) and focus on tools that will help permanently achieve the 2 percent inflation target. Meanwhile, ECB Vice President Luis de Guindos told the Spanish press that the economy is growing faster than the bank had expected, paving the way for the eventual withdrawal of aid programs.
The common currency hit a nine-month low of $1.166 in August amid the prospect of slowing global growth due to a coronavirus outbreak, and investors still believed the Fed would start tapering its massive monetary stimulus faster than the ECB.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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