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Investors Can No Longer Ignore Inflation Concerns

By David JonesMarket OverviewNov 26, 2021 07:31AM ET
www.investing.com/analysis/investors-can-no-longer-ignore-inflation-concerns-200609634
Investors Can No Longer Ignore Inflation Concerns
By David Jones   |  Nov 26, 2021 07:31AM ET
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If all you watch is stock markets, it can feel like we have had something of a quieter few days with the S&P 500 and NASDAQ indices both trading roughly where they were a week ago - although after both setting fresh all-time highs again. If we are looking for the real story of what markets continue to focus on at the moment, then we need to cast the net a little wider.

It’s inflation of course - and an excellent barometer of just what traders are thinking about when it comes to that is the US dollar index. This is the dollar against a basket of currencies: the euro, the pound, the yen, and the Swiss franc to name but four - and it can be an excellent proxy for wider investment sentiment.

For example, in the very early days of the pandemic in March 2020, investors unceremoniously dumped risk assets - but the dollar index hit a three-year high as investors fled to the greenback’s safe-haven status. All that changed as 2020 went on, and by the end of the year, the dollar index was at a two-year low as investors embraced risk once more.

It’s all changed again at the moment - just for this month so far. The dollar index is up by 2.7%, reaching its best levels since the summer of 2020. It does suggest that investor concerns regarding inflation are ramping up - if the US central bank raises rates to try and control inflation, it would usually help the dollar’s performance. So while stocks are still undeniably strong, don’t ignore some of the mood music happening around the edges.

One of the reasons for higher inflation is the rising cost of fuel: hello, oil price. This year, crude oil has risen by an astonishing 60%. This has been causing much frustration for governments, not least over in the USA. This week saw President Biden announce the country’s largest ever release of stored oil - tapping up strategic reserves in a bid to temper enthusiasm in markets.

Somewhat frustratingly, the oil price rallied on the news - perhaps expecting more oil than the 50 million barrels announced to hit the market. But some would argue that the oil rally is looking a little overdone at the moment, with the price having dropped by around 10% over the past month. This is another market investors are focusing on to see if there are real concerns of an economic slow down ahead, despite an ever-exuberant stock market.

Although all looks well on the surface, some of the moves in markets such as the US dollar could be suggesting that investors are positioning themselves a little more defensively for 2022.

Disclaimer: This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors, not necessarily Capital.com or any of its affiliates, subsidiaries, officers, or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Past performance is no guarantee of future results.

Investors Can No Longer Ignore Inflation Concerns
 

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Investors Can No Longer Ignore Inflation Concerns

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Disclaimer: This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of Capital.com or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Past performance is no guarantee of future results.
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