Equities feel the pressure of a slowing economic activity - Market Overview

Von: Miguel A. Rodriguez

14:55, 07 Juli 2021

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After yesterday's session, the stock markets opened flat, marked by drops in both European and North American equities.

The 10-year U.S. Treasury Bond Yield fell eight bp to 1.35%, the lowest since last February, while the German bund dropped six bp.

These things can be seen as consequences for newly formed fears regarding the slowing pace of economic activity, as illustrated by important reports like Purchasing Managers’ Index (PMI).

Yesterday there was also a sharp drop in the price of crude oil, despite OPEC+ failing to reach an agreement on production cuts. The intervention of the American government urging the producing countries to reach an agreement for stopping the upward escalation of oil had an impact on the market. However, yesterday's movement can be framed in a context of a technical correction, with oil prices still far from the levels that can be considered critical supports for ending the upward trend. The RSI indicators were in the overbought zone on the daily chart, but yesterday's correction moved them back in a zone of less pressure.

Today the European Commission will release its economic forecasts, expected to show a more optimistic tone, hand in hand with the significant advances in vaccination. However, the markets expect the European Commission to also talk about the emergence of new strains of COVID-19 and the possible impact that they may have on the economic reopening. Along the same lines, yesterday, we saw how the ZEW sentiment index fell sharply yesterday.

The euro fell, with the EUR/USD pair trading near the immediate support zone located around 1.1805. Below this level, it could make its way down to the next support level located at 1.1711.

Today the FOMC Meeting Minutes are scheduled for publishing. The Fed members went from a highly dovish to a moderately dovish position by slightly tightening their dot plot to 2023, estimating two increases by the end of that year. The detailed content may provide more clues on Fed's intentions, especially on the "tapering" stimulus withdrawals, potentially influencing the Dollar’s price.

Sources: Bloomberg, reuters.com.

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