12 May 2021

Dow Tumbles Over 450 Points on Inflation Woes

Tags

News shaping
the markets today

     

What’s happening: US stocks closed lower on Tuesday, with the Dow Jones index tumbling more than 450 points.

What happened: Wall Street recorded one of the wildest days of the year, with big tech stocks trading sharply lower to start the session on worries over rising inflation.

However, in an unexpected twist, the tech-heavy Nasdaq 100 recovered slightly during the afternoon session, while the other major indices remained in the red zone.

Why it matters: Technology stocks started the session sharply lower, mirroring a plunge in tech stocks in China amid talks of stricter regulations. The sell-off spilled over to the rest of the market, taking down all stocks from banking to energy.

Investors remained concerned about rising inflation, which could push the Federal Reserve to raise interest rates sooner than expected.

The CBOE Volatility Index, a measure of volatility in the stock market, surged as high as 23.73 on Tuesday, hitting a two-month high.

By the afternoon, tech stocks erased most of the losses. The tech-laden Nasdaq 100 fell as much as 2% earlier in the session but ended the day only 0.06% lower, at 13,351.27.

The US dollar hit a fresh 10-week low on inflation concerns, as price rises erode the value of the currency. The greenback, too, pared some losses by the end of the day. The dollar index, which measures the currency’s value versus six major currencies, settled lower at 90.14 on Tuesday, after reaching as low as 89.97 earlier in the session.

On the economic data front, job openings jumped to a record high in March. Employers reported they were unable to find workers to fill positions.

“When valuations remain high, even factoring in yesterday’s and today’s selling, the promise of rock bottom interest rates fades as the market questions the strong job openings report against the availability of labor and the need to boost wages to fill the positions, not to mention concerns that fiscal largesse is keeping workers from moving back into the labor force,” Prudential Financial analyst Quincy Krosby said in a note.

The Dow Jones dipped 474 points to close at 34,269.16, led by declines in the shares of Boeing and Home Depot. The S&P 500 fell 0.87%, with all sectors trading in the red zone.

What to watch: Markets await inflation rate data from the US, which could have a meaningful impact on the stock market. The annual inflation rate had surged to 2.6% in March and is expected to rise further to 3.6% in April.

The US government budget data will also remain in focus, with the budget deficit projected at $220 billion in April, versus a $660 billion deficit in March.

The Markets Today

     

The British pound will be in focus today, ahead of economic reports from the UK.

Context: Sterling extended gains on Tuesday, after recording its best session against the US dollar during the start of the week.

Details: The GBP is the third best performing G10 currency versus the greenback so far this year, just behind the Norwegian krone and the Canadian dollar. The GBP/USD forex pair has risen 3.4% year to date.

The Scottish National Party failed to secure a majority in Holyrood. This came as a relief for the sterling, which had been trading cautiously amid the election uncertainty.

Investor sentiment was also boosted by Prime Minister Boris Johnson announcing that the covid-19 lockdown in the country will be further lifted from May 17, with a faster rollout of vaccines.

The sterling also benefited from the Bank of England’s decision to start tapering its bond purchases, amid an improvement in the economic outlook.

The GBP/USD settled at $1.4141 on Tuesday, a day after the forex pair hit a two-and-a-half month high of $1.4158 on Monday.

What to watch: Investors await data on GDP growth rate and industrial production from the UK. Britain's gross domestic product, which contracted 7.8% in February, is projected to grow by 1% in March. Analysts expect industrial production to rise 1% in March.

Traders remained slightly cautious ahead of economic releases, with the GBP/USD paring recent gains and trading lower by 0.2% this morning.

Rising covid-19 cases remain one of the top concerns for markets, with total global infections surpassing 159.3 million.

Other Markets: European trading indices closed lower on Tuesday, with FTSE 100, German DAX 30, French 40 and STOXX Europe 600 down by 2.47%, 1.82%, 1.86% and 1.97%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany's consumer price inflation rate, UK’s balance of trade, business investment, manufacturing production, construction output, goods trade balance and construction orders, France's consumer price inflation, eurozone’s industrial production and ECB’s non-monetary policy meeting, Mexico’s industrial production, America’s MBA mortgage applications and crude oil inventories, India's industrial output and manufacturing production, Russia’s balance of trade, Brazil’s industrial entrepreneur confidence index, as well as China's auto sales, new yuan loans, outstanding yuan loan, total social financing and money supply M2.

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.