11 June 2021

S&P 500 Hits Record High Despite Rising Inflation

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News shaping
the markets today

     

What’s happening: US stocks closed higher on Thursday, with the S&P 500 surging to a record high.

What happened: Investors shrugged off CPI (consumer price inflation) data that showed a higher-than-projected rise in pricing pressure in the US.

The Labor Department’s jobless claims data, released on Thursday, boosted investor sentiment on Wall Street.

Why it matters: With the global economy staging a healthy recovery from the pandemic-driven contraction, the stock market has reflected high investor optimism so far this year. Equities also continue to be buoyed by government stimulus, the reopening of economies and covid-19 vaccinations.

The only major factor dampening this optimism recently has been inflation concerns. Investors are worried that higher inflation might push central banks to tighten their monetary policies sooner than expected, despite continuous reassurances from officials about their commitment to continue with the current policies.

Economic data released on Thursday showed that inflation had climbed to 5.0% in May, higher than the consensus estimate of 4.7%. Core CPI, which excludes food and energy prices, rose to 3.8%.

Several economists said that the recent rise in used vehicle prices may have pushed the inflation reading higher for the month. Prices for used cars and trucks climbed more than 7%, accounting for around a third of the overall rise last month.

US stocks closed higher on Thursday despite inflation concerns. “I think there were a lot of people who held back, who wanted to see the hotter inflation number. Now they’ve said, ‘OK, now that’s over with. Let’s do some buying.’ Because they’ve been on the sideline and they want to get in,” said CNBC’s Jim Cramer.

Investor sentiment was lifted by the jobless claims report, which showed a decline in initial jobless claims to 376,000 for the week ending June 5. This marked the lowest figure in the covid-19 pandemic era.

The S&P 500 rose around 0.5% to an all-time closing high of 4,239.18 on Thursday, after reaching an intraday record high of 4,249.74. The Dow Jones index added 19.10 points to close at 34,466.24, paring gains made earlier in the session. The Nasdaq 100 climbed 1.05% to settle at 13,960.35.

What to watch: Markets await consumer sentiment data from the US today. The University of Michigan's consumer sentiment for the US is expected to rise to 84 in June, from 82.9 in the previous month.

The Markets Today

     

The euro will be in focus today, following the ECB’s policy announcements.

Context: The EUR/USD forex pair settled almost flat on Thursday after wide fluctuations in the euro during the session as news flowed around the ECB’s latest meeting.

Details: Following its June policy meeting, the ECB decided to keep its benchmark rate steady at 0.00%, as was widely expected.

The ECB also announced plans to maintain the total size of the PEPP (Pandemic Emergency Purchase Programme) at €1,850 billion at least till the end of March 2022.

The inflation rate was rising, heading into the policy decision. However, ECB President Christine Lagarde said the bank will continue purchases at the higher rate during the forthcoming quarter. Lagarde added that discussions around a PEPP exit were premature.

The euro became volatile, however, as reports said three ECB policymakers were in favour of lowering the pace of the PEPP given the improving economic outlook.

The rise in inflation also led to the central bank raising its estimates for economic growth and inflation for 2021 and 2022.

“Beyond the June ECB meeting, we retain our constructive view on EUR/USD and target the 1.25 level this summer,” said ING analysts.

The EUR/USD forex pair settled at 1.2177 on Thursday, after rising to 1.2200 earlier in the session.

What to watch: Traders will keep an eye on several economic reports due to be released by European nations today.

The covid-19 pandemic remains one of the top concerns for markets, with total global infections surpassing 174.7 million.

Other Markets: European trading indices closed mixed on Thursday, with the FTSE 100 and STOXX Europe 600 up by 0.10% and 0.03%, respectively, and the German DAX 30 and French 40 indices closing lower by 0.06% and 0.26%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s wholesale prices, UK’s balance of trade, industrial production, manufacturing production, construction output, good trade balance and gross domestic product, Spain’s consumer price index, Turkey's industrial output, total motor vehicles production and retail sales, Russia’s balance of trade and Central Bank of Russia’s interest rate decision, Mexico's industrial production, India’s foreign exchange reserves, industrial output and manufacturing production, Canada’s capacity utilization, America’s Baker Hughes crude oil rigs, China's auto sales as well as G7 Summit.

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