Financial markets have become increasingly volatile as market players try to assess monetary policy stance of major central banks as well as China’s efforts to curb rising raw material prices and also the diverging virus situation in Asia and US and Europe.
Improving economic outlook and signs of rising price pressure has boosted market concerns that central banks may tighten monetary policy. Adding to this, some Fed officials have expressed readiness to consider discussing tapering of asset purchases in coming months.
Market concerns have persisted despite mixed economic data and dovish comments from major central banks. US weekly jobless claims fell further to March 2020 lows reflecting improvement in the labor market while an unexpected decline in pending home sales added to disappointing housing data.
Adding to volatility, China has repeatedly expressed concerns about rising raw material prices and willingness to curb prices. A Reuters report noted that China will strengthen price controls on iron ore, copper, corn and other major commodities in its 14th five-year plan for 2021 to 2025 to address abnormal fluctuations in prices. China has also asked five state-owned companies to report on their use of imported oil over the past years, part of a broader effort to regulate crude imports into the world’s largest oil importer (reports Reuters).
Market players have also become cautious in diverging virus situations in Asia and Europe and the US. While the US and Europe have seen significant improvement in the virus situation allowing authorities to ease virus related restrictions, Asian countries are still struggling with higher cases and have tightened restrictions further.
The uncertainty impacted both equity and commodity markets. US DJIA Index has recovered from recent lows but is well off the record high level set earlier this month. Copper is also struggling near the 10,000 level but remains well off the record highs. Brent crude oil continues to trade in a broad range but below the key $70 per barrel level.
There are few winners as well. Gold breached the $1,900 per troy ounce level for the first time since January as it gained support from choppy equities, weaker US dollar and ETF buying. China’s Shanghai composite index jumped to February highs as market players chose alternative assets amid crackdown in the commodity market. US bonds also saw modest gains on safe haven buying.
There is a lot of uncertainty relating to central bank monetary policy and China’s commodity crackdown and it may not be resolved soon which means volatility may persist in the near term.
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