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Daily Wrap Up 18 August 2021

18 Aug 2021 04:38 PM

Markets muted ahead of Fed minutes, Kiwi dips

Stock markets have been relatively muted today. Yesterday, the disappointing US retail sales sparked fears the country’s rebound is faltering, which led to a fall in stocks, and that is why traders have been cautious today. Seeing as it has been a quiet day with respect to economic indicators, some traders are sitting on their hands as the Federal Reserve will post the minutes from last month’s meeting this evening. In July, the central bank, said although the US economy has made improvements, it has yet to make significant progress with respect to achieving its economic targets. To an extent, the minutes from the meeting are a little out of date, considering that since the rate decision, the US posted a strong jobs report. It is possible the minutes will provide us with an extra insight into the thinking of the Fed. Yesterday, Jerome Powell, the head of the Fed, said there is growing support to begin tapering the bond buying scheme from next month.  European indices are mixed, while the S&P 500 is essentially flat on the session.

It is not just stocks that are quiet, there is little activity in the US dollar too, once again, traders are playing the wait and see game ahead of the Fed minutes. Gold has also had an uneventful session for the reasons outlined above, the metal is typically sensitive to updates from the US central bank.

It was announced the UK CPI rate fell from 2.5% to 2%, and this caught the markets by surprise. The finer details of the report showed that computer games and package holidays saw declines in prices. It is also worth noting that fashion houses kicked off their summer sales last month too. The CPI data is out of step with the recent updates from the UK as there has been a clear picture of a rebounding economy. Despite the not-so-hot inflation numbers, the British pound is largely higher.

The New Zealand dollar is down versus most major currencies as the Reserve Bank of New Zealand (RBNZ) kept interest rates on hold overnight. Going into the meeting, there was speculation the bank would lift rates, which would have been symbolic. The country has a tough stance with respect to the pandemic, a new lockdown has been announced all because of one confirmed case of Covid-19, so it easy to understand why the central bank decided not to pull the trigger in relation to increasing rates. Even though the Kiwi is under pressure today, there is likely to be chatter of a rate hike ahead of the next RBNZ meeting.

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