27 May 2021

Bank Stocks Plummet, EU STOXX Under Pressure

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News shaping
the markets today

     

What’s happening: European stocks closed mostly flat on Wednesday, as markets continued to assess the inflation outlook.

What happened: The pan-European STOXX 600 index had surged to a record high on Tuesday, driven by upbeat earnings reports and optimism surrounding the reopening of various economies.

However, the index came under pressure yesterday, as banking stocks plummeted following comments from central bank policymakers.

Why it matters: The STOXX 600 has climbed around 12% so far this year, with investors responding to the rollout of massive stimulus, the accelerated pace of covid-19 vaccinations and the reopening of economies.

Although European stocks ended Wednesday’s trading session almost flat, the index reached a record high of 447.15 earlier in the day.

“Investors appear to be fairly content with the outlook for policy, and inflation concerns have certainly receded for the time being,” IG analyst Chris Beauchamp said in a note.

US Federal Reserve officials reiterated their dovish stance on the monetary policy, despite the encouraging rebound in the economy. ECB policymakers issued similar comments, indicating that it may be too early to discuss the tapering of emergency bond purchases.

While the comments from central banks pledging to maintain their loose monetary policy, despite recent signs of an uptick in inflation, improved overall market sentiment, banking stocks came under severe pressure.

The Stoxx 600 index closed almost flat at 445.22 on Wednesday, with travel and leisure shares surging over 1% and banking stocks shedding more than 1%.

Investor sentiment was also buoyed by economic data released by France. France’s consumer confidence rose to 97 in May, from 95 in the earlier month, while its manufacturing climate indicator surged to 107, from April’s reading of 104.

The French 40 index edged higher by 0.02% on Wednesday. Meanwhile, the German DAX 30 declined 0.09% and London’s FTSE 100 slipped 0.04%.

What to watch: Investors await various economic reports from European countries, including France’s unemployment benefit claims, Germany’s GfK consumer climate indicator and car production data from the UK.

Markets will also keep an eye on progress of covid-19 vaccinations in Europe and the US.

The Markets Today

     

Crude oil in focus today, after closing higher on Wednesday.

Context: Oil futures settled higher on Wednesday, after paring losses earlier in the session following the release of data on crude inventories.

Details: Crude prices fell initially in the session as traders continued to monitor prospects of Iranian supply returning to the market.

However, US data showing a decline in domestic petroleum inventories provided some support to oil prices on Wednesday.

The EIA (Energy Information Administration) reported a decline of 1.7 million barrels in US crude inventories in the week ending May 21. Although this was lower than the projections of a decline of 2.2 million barrels, the news supported market sentiment.

“The potential for a return of Iranian oil supply into the market has been keeping oil prices from gaining further,” said ING analyst Warren Patterson. He added, “On the positive side, physical demand has been improving in both Europe and the US as a slowdown in new COVID cases has been pushing up mobility.”

A slowdown in the new covid-19 cases in India, the third-largest oil consumer in the world, also lifted investor sentiment.

WTI (West Texas Intermediate) crude for July delivery gained 0.2% to settle at $66.21 per barrel on the NYMEX (New York Mercantile Exchange) on Wednesday, after trading as low as $65.25 earlier in the session. July Brent crude rose to close at $68.73 per barrel on ICE Futures Europe.

The EIA also reported a decline in gasoline supply by 1.7 million barrels for the latest week, versus expectations of a decline of just 700,000 barrels. June gasoline settled higher at $2.1501 a gallon, while June heating oil rose to close at $2.0452 a gallon on Wednesday.

What to watch: Markets will keep an eye on the covid-19 situation around the world, with total infections exceeding 168.1 million.

Traders also await the EIA’s data on natural gas stockpiles. Working gas held in storage facilities in the US, which rose by 71 billion cubic feet in the week ending May 14, is expected to increase 104 billion cubic feet in the latest week.

Crude oil could come under pressure today, with oil futures trading lower by 0.5% at 0500 GMT.

Other Markets: US indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.03%, 0.19% and 0.33%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Italy’s consumer confidence index and manufacturing confidence index, South Africa's SACCI business confidence index and producer prices, Mexico’s unemployment rate and monetary policy meeting minutes, Turkey’s foreign exchange reserves, Brazil’s unemployment rate, Canada’s average weekly earnings, Argentina’s consumer confidence and balance of trade, as well as the US durable goods orders, initial jobless claims, GDP growth rate, pending home sales and Kansas City Fed's manufacturing production index.

 

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