21 June 2021

European Stocks Tumble, Investors Eye Entry Points

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News shaping
the markets today

     

What’s happening: European shares settled sharply lower on Friday, as investors digested hawkish comments from the US Federal Reserve.

What happened: A sharp decline in banking and energy shares put an end to the pan-European STOXX 600 index’s four-week winning streak.

European stocks tumbled from their near record-highs on profit taking. Concerns around the Fed looking to tighten its monetary policy sooner than planned also exerted pressure on global equities.

Why it matters: The benchmark European index recently surged to new highs as the ECB reiterated plans to keep its monetary policy loose. However, signals from the US Fed around an earlier-than-expected tapering exerted pressure on European equities.

US Fed official James Bullard said the central bank might look to increase interest rates by the end of next year, driven by higher inflation due to accelerating economic growth.

Investors were also worried as the EU lost its bid to expedite the delivery of AstraZeneca’s covid-19 vaccine. With the bloc now scrambling to shore up supplies, the latest court ruling is likely to slow the pace of vaccinations in the region. However, the judge supported the view that AstraZeneca had failed to honour its commitments and ordered the UK-based pharma giant to deliver vaccine doses by the agreed deadlines. In case the company misses supply deadlines, it will attract a penalty of €10 per dose, as per the European Commission.

Market sentiment was also hurt by the UK reporting a 1.4% decline in retail sales for May, which missed the consensus estimate of 1.6% growth. The data further revealed that food stores had contributed to the unexpected contraction in sales. As a result, London’s FTSE 100 tumbled 1.9% on Friday.

Germany’s PPI (producer price index) rose 1.5% in May, above market expectations of 0.7%. The DAX 30 index responded by shedding 1.8% of its value.

Commodity markets remained under pressure, with lower oil prices contributing to a 2.9% decline in energy shares in Europe. The STOXX 600 index slid 1.6% on Friday to record its worst session in five weeks. All sectors ended in the negative zone, with banking and oil shares being among the worst performers. The European index recorded a weekly decline of 1.2%.

“We’ve been very positive on financials and energy since last November and now we’re seeing a reversal of that as investors scale back. But this is temporary phase; there’s definitely more upside for financials and energy, which are still relatively cheap,” said TS Lombard analyst Andrea Cicione.

What to watch: With no economic data due for release from the Eurozone today, investors will look for further signs of policy tapering from the US Fed. Markets will also monitor ECB’s comments on its monetary policy.

The covid-19 pandemic remains one of the top concerns for markets, with total global infections surpassing 178.4 million.

The Markets Today

     

Bitcoin will be in focus today after the cryptocurrency tumbled below the $36,000 support level.

Context: Bitcoin prices dropped sharply on Friday to record its steepest decline in around three weeks, along with a retreat in equity markets.

Details: Bitcoin prices have been impacted by recent regulatory and environmental concerns. Despite the ongoing hurdles, the crypto markets saw strong demand from institutional investors.

Investor sentiment was supported by Spanish banking giant BBVA announcing plans to provide cryptocurrency trading services for private banking clients in Switzerland.

Comments from Elon Musk continued to impact Bitcoin prices, as the Tesla CEO tweeted that the company would restart accepting payments in the cryptocurrency if “there’s confirmation of reasonable (~50%) clean energy usage by miners.” Around a month back, Elon Musk had announced plans to stop accepting Bitcoin as payments for Tesla vehicles, citing environmental concerns related to mining of the crypto king.

Bitcoin prices tumbled more than 6% on Friday, with the world’s leading cryptocurrency breaking below the key $36,000 support level. Despite this decline, Bitcoin has gained around 23% year to date.

Ethereum, for the world’s second-largest cryptocurrency by valuation, also declined below $2,200 on Friday.

What to watch: Some of the big players in the industry are looking to address the recent environmental issues, as this is expected to impact demand from big institutional investors. Markets will also keep an eye on Elon Musk’s comments on Bitcoin, which are expected to significantly impact crypto prices.

Other Markets: US indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.58%, 1.31% and 0.81%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s Bundesbank monthly report, Brazil's central bank focus market readout, America’s Chicago Fed National Activity Index, Turkey’s government debt as well as Russia's unemployment rate, real wages, GDP and retail sales.

 

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