Euphoria in the US stock market

Analyse der Finanz- und Warenmärkte

Market Watch review. 07.04.2021

In today's release, we’ll cover the following topics:

  • Decline in unemployment and weakening of the US dollar.
  • OPEC+ is ready to increase oil production.
  • Gold is shining again.

On the last trading day of the previous week the American stock market did not operate in the normal mode. The banks were also closed, so the reaction to the published report on the US labor market did not take place until Monday, April 5. Let me remind you that the unemployment rate in the US reached its lowest level for the last 12 months, while the number of created jobs exceeded the forecasted value almost twice. All of this points to the effectiveness of the policies pursued by the Fed and the US government.

The US stock indices Dow Jones and S&P 500 reached new historic highs, thereby putting pressure on the US dollar, which weakened noticeably against most currencies. Thus, the EUR/USD currency pair strengthened by more than 80 points, reacting to the weakening of the dollar. Nevertheless, active purchases of this currency pair remain in the zone of increased risk, as the overall recovery of the US economy will contribute to the strengthening of the national currency in the longer term.

And now let's move on to the oil market. The news that OPEC+ is ready to boost output by 2 million barrels per day within the next three months brought the US WTI quotations down to $58 per barrel. Considering the fact that the USA is one of the leaders in black gold consumption, the growth of the stock market prevented oil quotes from a more powerful decline. Moreover, I would like to draw your attention to the fact that for the third week already the price of the US oil is kept in a wide sideways range between $57 and $62.

The lack of a unidirectional price movement indicates a clear uncertainty in the market, which is due to the presence of two quite strong factors at the same time. Firstly, the OPEC+ decision to increase oil production is clearly a bearish fundamental factor which has already managed to put pressure on oil quotations. Secondly, a number of countries are showing quite a high vaccination rate, and we are also seeing a steady increase in the level of business activity in the manufacturing sector. Recovery of the world's largest economies is bullish and at the moment it compensates for the risks of increased oil production. The stability of this market remains a temporary phenomenon.

We will conclude today's review with gold, although many write off this asset. A number of investment banks have repeatedly noted the loss of its function as a protective asset, and this makes some sense. But the increase in liquidity, which has already provided quite strong support to the stock market, contributes to the growth of gold prices. Therefore, we should not exclude the appearance of a more powerful wave. The bullish scenario will remain relevant until the price returns below $1720 per ounce. It takes into account the growth to $1760 and further to the psychological level of $1800.

Closely monitor the news background and be prepared for all the surprises of the market.


FAQ