New strain of coronavirus affects market dynamics - 21.7.2021

Today, the US dollar index is rising for the 5th day in a row. It nearly hit a 4-month high yesterday. Investors hope the Fed will cut back on its $ 120 billion a month asset repurchase program. This could be announced in August at the annual Jackson Hole symposium. Important changes are not expected at the next Fed meeting on July 28. Note that the strengthening of the American currency is taking place against the background of a noticeable demand for government bonds. They went up and the yield on the 10-year U.S. Treasury yesterday fell below 1.2% per annum, for the first time since January this year. The Australian dollar has tumbled to its lowest since November last year following the publication of the RBA Meeting Minutes. Investors fear that the Reserve Bank of Australia will change its mind about cutting the economic stimulus program. Its next meeting will be on August 3. The yen is trying to strengthen amid good data on Japanese foreign trade. In June, exports increased for the 4th consecutive month.

On Tuesday, American stock indices rose after a strong fall the day before. The recent market correction was mainly driven by the risks of a new wave of the coronavirus epidemic if vaccines fail to cope with the new Delta strain. Meanwhile, fundamental corporate data looks optimistic. Now for the 2nd quarter, reported about 60 companies from the S&P 500 list. Financial performance of 90% of them turned out to be better than expected. Refinitiv has raised its forecast for the growth of the combined profit of all companies from the S&P 500 list to + 73% in April-June 2021 compared to the same period last year. Before the start of the reporting season, only + 54% growth in total profit was expected. Johnson & Johnson, Verizon, Coca-Cola, Texas Instruments and other American companies will report today. No significant macroeconomic data is expected in the US today. Yesterday there were indicators on US housing construction for June, which turned out to be neutral.

World oil prices are now slightly correcting upward after a strong fall. Brent has plunged nearly 12% from its recent high. Investors fear that in the event of a new wave of coronavirus caused by the Delta strain, global oil demand will decrease. The independent American Petroleum Institute announced an increase in US oil reserves for the week by 0.8 million barrels. This happened for the first time after 8 weeks of continuous inventory decline. An additional negative for oil quotes was the OPEC + decision to increase production by 400 thousand barrels per day (bpd) monthly until it reaches a precocious level. The decision will take effect in August. In total, OPEC + should increase production by 5.8 million bpd. Thus, a full recovery will occur early next fall. Earlier it was assumed a slower rate of increase in oil production by OPEC + countries.