E Tuesday Talk: Vaccinations Up, COVID Cases Down, Market Correcting

While vaccinations are on the rise and COVID-19 cases coming down in the U.S. and Europe and as President Biden marks 500K plus deaths from the virus the market appears to be in a corrective mode.

On Monday the S&P 500 closed at 3,876, down .77%, the Dow Jones Industrial Average closed at 31, 521 up .09% and the Nasdaq Composite closed at 13,533, down 2.46%. Currently S&P futures are down 14 points and Dow futures are down 76 points, while Nasdaq futures are trading about 160 points lower.

Things across the pond are somewhat similar. Concern about inflation and the strength of the Euro is offset by cautious good news about the reopening of schools and businesses in the U.K.

TalkMarkets contributor Martin Essex  writing in FTSE 100, FTSE 250 Outlook Improves After UK Unemployment Data And Roadmap  notes that investors should be on the lookout for a continuation of the rally in the FTSE due to signs of recovery in the labor market.

"The headline UK unemployment rate edged up to 5.1% in December, as expected, but data released early in the European day Tuesday also showed that the number of people claiming benefits dropped by 20,000 in January, rather than increasing as analysts had predicted. The numbers add weight to the idea that the UK economy is now on the way to recovery and that should bolster both the FTSE 100 and the FTSE 250 indexes of London-listed stocks, particularly after UK Prime Minister Boris Johnson’s so-called four-step roadmap to ease coronavirus restrictions, unveiled Monday, was broadly welcomed for its slow and cautious approach."

red and white striped flag

In The ECB And The Return Of InflationCarsten Brzeski notes that inflation in the Eurozone is a happening thing, with one of the drivers being a rise in energy prices.

"Eurozone inflation in January was just confirmed at 0.9% year-on-year, the highest level since February last year. Core inflation stood at 1.4% YoY. Higher energy prices, some supply-side disruptions and bottlenecks as well as higher prices for services are the drivers behind higher headline inflation in the eurozone. The divergence across eurozone countries is high, with headline inflation ranging from -2.4% YoY in Greece to 1.6% YoY in Germany and the Netherlands - a divergence which doesn’t make the ECB’s life any easier."

Brzeski finds signs that indicate the current bouts of inflation in the eurozone are "cost-push".

"To understand the ECB’s reaction function to higher inflation (expectations) and yields, it is important to look at the nature of these inflation developments. In fact, there are two types of inflation, the “cost-push” inflation, driven by temporary one-off factors, and the “demand-pull” inflation, with too much money chasing too few goods as a sign of an overheating economy. “Cost-push” inflation can actually be considered as being deflationary, reducing purchasing power. This is why the ECB will look through these kind of temporary and technical inflations spurts. It is the “demand-pull” inflation which the ECB will monitor closely.

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