On Thursday, the world markets fall against the background of extremely disappointing data from the labor market in the United States and a new large-scale program of assistance to the American economy and citizens of the country announced by Joe Biden.
What happened and what to expect from the market?
The data on the applications for unemployment benefits came out extremely disappointing on Thursday. The number of applications rose by 965,000 last week, a noticeable increase since August last year. The number of applications for the previous review period was reduced to 784,000. The expected value was at 795,000.
In the wake of this news, the stock market in America and Europe began to turn downside due to growing fears that labor market problems will continue to dominate the economy. Together with the coronavirus pandemic factor, all this is causing widespread concern among investors. It looks like investors have begun to doubt the American economy’s ability and the global one to recover quickly.
Yesterday, Joe Biden announced a large-scale program to help the country’s economy and its citizens worth $ 1.9 trillion, which is in itself an unprecedented event and, in theory, should have led to a sharp increase in demand in the stock markets, but this did not happen. On the one hand, this can be explained by the traders’ rule “buy the rumor, sell the news,” but, as I see it, the reason is different. Investors simply do not believe that such an incredible amount of assistance can be approved by Congress and the declared amount looks more like a propaganda move than a reality.
The US dollar attempt to rise due to a wave of negativity was restrained by a comment by Fed Chairman Jerome Powell, who made it clear that no change in the level of interest rates should be expected in the foreseeable future. However, the rise in government bonds’ yield curve indicates that investors doubt the regulator’s resilience. In any case, the data on consumer inflation published earlier this week indicate that inflation is growing and, if this process continues, the Fed will have nothing to do but revise its view on the monetary rate.
What to expect soon:
Assessing the market situation, I believe that the markets’ correction may continue until Congress decides on support measures. If the stimulus measures are approved, an upward reversal with strong growth may occur. Otherwise, it might lead to a collapse on the markets.