FX.co ★ 05.03.2021: US stock indices drop 1-2% yesterday

Today market participants are alert to the US nonfarm payrolls and the unemployment rate for February.

In the speech yesterday, the Fed’s Chairman acknowledged the fact of rising consumer inflation. This happens in parallel to a surge in yields of US Treasuries. This double whammy is certainly putting pressure on Wall Street.

The US market saw violent selling in Treasuries for the recent three days. The benchmark US stock indices took a nosedive. Does a surge in Treasury yields lie behind such a roller coaster? Experts are certain this is not the case. At present, the market is affected by other headwinds. For example, the stock market is clearly overbought, so a deep downward correction is imminent.

Today Wall Street investors are facing a dilemma.

On the one hand, the US government has provided the domestic economy with a large-scale stimulus package worth 1.9 trillion dollars that equals nearly 10% of the US GDP. Such massive injections are virtually bringing to zero a three-year growth of the US economy which has been logging a steady growth of 3.5% on year.

More reasons for market jitters are overbought conditions in the US equity market, inflated market quotes, and a slowdown in the US employment. Notably, one of the main futures of the US stock market, futures on the S&P500 index, showed a downtick of just 0.2%.

The global benchmark oil grade, Brent, conquered a record high of 86 dollars a barrel, the strongest level over the recent 12 months. What is a catalyst for this spike? Could it be a sharp increase in the global demand for oil or contraction in oil drilling? The underlying reason is pragmatic. The outcome of the OPEC summit of March 4 propelled a rally in oil prices. The cartel decided not to raise quotes of oil output despite a revival in the global economy as the coronavirus pandemic is ebbing away. The cartel granted an exemption to Russia which was allowed to increase oil production by 150,000 barrels per day to cope with robust seasonal demand for fuel inside the country.

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