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U.S. CPI, ECB Meeting, Bitcoin and GameStop - What's Moving Markets

EconomyJun 10, 2021 11:31
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By Peter Nurse -- Much-anticipated U.S. consumer prices are due for release, the ECB meets, Bitcoin rebounds after El Salavador adopts the digital currency, GameStop shakes up its boardroom, while crude slips lower. Here's what's moving markets on Thursday, June 10th.

1. U.S. CPI looms large

It’s finally here. Investors have largely started on the sidelines this week ahead of the release of the Labor Department's consumer price index report. It’s due for release at 8:30 AM ET (1230 GMT), and will be one of the last major economic indicators before the Fed’s next policy meeting June 15-16.

Consumer prices are rising quickly as the economy reopens after the pandemic, and this CPI report is expected to show prices rose another 0.4% in May, pushing annual inflation above April’s 4.2%, already the highest in more than a decade, to 4.7%.

Investors are studying this number carefully for clues on the Federal Reserve’s monetary policy path, especially after the strong April number and the repeated assurances from central bank policy makers that elevated inflation will be temporary in nature.

A strong number could put Fed members under heavy pressure to defend these views, and many think the average expectation of an annual rise of 4.7% is conservative.

Part of the Fed’s rationale that the price spike will be temporary is the lack of wage growth for years, particularly at the lower end of the pay scale. However, last week’s jobs report showed a larger-than-forecast pickup in average hourly wages for a second straight month, raising the dreaded prospect of a wage-price spiral.

“We are likely in for another inflation shocker in June,” said analysts at Nordea, in a note, “but the question is whether the market will explain it away as a transitory effect.”

The CPI release is not the only important data release, with the number of Americans filing new claims for unemployment benefits in the week ending June 5 seen dropping by 15,000 to 370,000 from 385,000 the previous week, also at 8:30 AM ET, in a further sign of economic reopening. 

2. Stocks seen flat; GameStop shakes up C-suite

U.S. stocks are largely unchanged Thursday, continuing the week’s listless trading with investors cautiously awaiting a key U.S. inflation later in the session.

By 6:20 AM ET, Dow Jones futures were up 40 points, or 0.1%, S&P 500 futures were less than 0.1% higher and Nasdaq 100 futures dropped 0.2%.

The three major indices traded within tight ranges lower Wednesday, with the blue-chip Dow Jones Industrial Average, the broad-based S&P 500 and the tech-heavy Nasdaq Composite all ending the day lower but within 0.5% of Tuesday’s closing levels.

Investors have been warily awaiting the latest consumer price release, see above, amid worries that a sharp spike in inflation could prompt the Federal Reserve to curb the pace of its asset purchases or begin to signal an increase to interest rates.

“Although this should be a peak in U.S. prices, inflation should remain elevated and above the target throughout the year,” said analysts at ING, in a note.

In corporate news, meme stock favorite GameStop (NYSE:GME) is likely to be in the spotlight later Thursday after the struggling video game retailer Wednesday announced the appointment of former Amazon (NASDAQ:AMZN) executives Matt Furlong and Mike Recupero as chief executive officer and chief financial officer, respectively, while reporting second-quarter results that topped Wall Street expectations. 

3. ECB policy meeting

The European Central Bank concludes its latest policy-setting meeting later Thursday, and is widely expected to keep its bond-buying at elevated levels, maintaining a generous flow of stimulus to sustain the still nascent recovery.

An announcement is due at 7:45 AM ET (1145 GMT), with the press conference 45 minutes later.

ECB President Christine Lagarde recently stated that it was "far too early" to discuss tapering the bank's 1.85 trillion euro Pandemic Emergency Purchases Programme, suggesting that any discussion over tapering at this meeting would be short. Particularly as it was only at the end of March that the central bank ramped up the bond-buying program to keep borrowing costs in check.

However, a full and frank dialogue is going to have to happen fairly shortly given the backdrop of a resurgent economy fueled by higher vaccination rates and falling infections. Coupled with this, the ECB is likely to raise most if not all its growth and inflation forecasts later today.

“We expect the ECB’s bond purchase volumes to fall clearly already in August, which is customary, since bond issuance volumes normally also fall clearly in that month, said analysts at Nordea, in a note. “The ECB could then decide on lower purchase volumes at the September meeting when the starting point is already lower due to the lower August buying…[and] continue to expect net PEPP purchases to be discontinued by the end of March 2022.”

4. Bitcoin helped by El Savador adoption

Bitcoin, the world’s largest cryptocurrency by market capitalization, continued to push higher Thursday, adding to Wednesday’s hefty gains after El Salvador became the first country to adopt the digital currency as legal tender.

At 6:20 AM ET, Bitcoin traded almost 7% higher at $36,364.0, following on from a leap of 13% on Wednesday.

This decision means that prices can now be shown in bitcoin, tax contributions can be paid with the digital currency, and exchanges in bitcoin will not be subject to capital gains tax.

Bitcoin supporters have long seen it as a viable alternative to fiat currencies, and this will undoubtedly give that view some credibility.

That said, it remains to be seen whether the digital currency can break out of the $30,000 to $40,000 range that’s been in place since a collapse from a record of almost $65,000 in April.

Weighing on the digital currency has been criticism of the energy needs required to mine it by influential entrepreneur Elon Musk as well as a Chinese regulatory crackdown.

Additionally, investment bank JPMorgan Chase (NYSE:JPM) pointed to backwardation in the futures market, where the spot price is above futures prices, as a reason for caution.

“We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market,” JPMorgan strategists wrote in a note.

5. Crude flat; Higher U.S. gasoline stocks dent optimism

Crude oil prices are largely unchanged Thursday, struggling to add further gains after growing U.S. gasoline stocks punctured optimism for rising demand during the U.S. driving season.

By 6:20 AM ET, U.S. crude was up 0.1% at $70.02 a barrel, after earlier this week closing above the $70 mark for the first time since October 2018. Brent was up 0.1% at $72.31, just below the highest level since May 2019. 

On Wednesday, crude oil supply data from the U.S. Energy Information Administration showed a draw, for the third straight week, of just over 5 million barrels for the week ending June 4. 

However, U.S. gasoline inventories increased the most since April 2020, rising by more than 7 million barrels for a second weekly gain, suggesting weaker-than-expected fuel demand at the start of summer, the country's peak season for motoring.

Also weighing was the news that fuel demand in India, the world's third-largest oil consumer, slumped in May to its lowest since August last year, as a second Covid-19 wave muted economic activity.

That said, the overall tone within the crude market remains positive, with the Organisation of Petroleum Exporting Countries set to release its monthly market report later Thursday. The report will include production numbers for the group for the month of May, as well as the group’s latest outlook for the remainder of the year. 

Last month OPEC’s report said demand will rise by 5.95 million barrels per day this year, or 6.6%, predicting that growth in China and the United States would counter the coronavirus crisis in India.

U.S. CPI, ECB Meeting, Bitcoin and GameStop - What's Moving Markets

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