Equities recover as fear fades, dollar cools
European stocks are on track to finish higher today following on from the major declines that were witnessed yesterday. In the first few hours of trading, there was a sense of fear still lingering as the memory of yesterday’s losses was still fresh in traders’ minds, but as the session went on, the mood lightened. Even though indices are tipped to close higher, they are still comfortably below the highs of the week. Over in the US, it is a similar story, whereby bargain hunters are cautiously stepping back into the fold. The prospect of the Fed tapering its stimulus sooner than expected has been the main driver of the markets in the week, that topic is still doing the rounds, but the fear attached to it has faded a little.
The US dollar set a new nine month high today, but it has since retreated a little. There is growing speculation that the Federal Reserve might look to trim its bond buying scheme later this year, and that has been the main factor behind the dollar’s rally. To a lesser extent, the dollar has been hit by the reversal of the flight to quality play that it enjoyed yesterday. As stock markets on both sides of the Atlantic moved higher in the past few hours, the US dollar has handed back much of its earlier gains.
The British pound is largely lower across the board following the disappointing retail sales from the UK, which fell by 2.5% last month, and that shocked dealers seeing as economists were expecting growth of 0.2%. There were reports that some people stayed away from public places due to the increase in Covid-19 cases, it is also understood that fashion houses kicked-off their summer sales last month too, so that could also be a factor behind the poor reading. Sterling is in the red, but it is holding up relatively well, so that suggests that traders are still a little confident in the currency.
Gold continues to trade in a relatively small range as the metal is boxed in by the moves in the US dollar as well as safe haven flows. Despite the fact it is off it its recent highs, the uptrend that begun over two weeks ago is still in effect. Copper and platinum have rebounded from the painful declines they saw yesterday, whereas oil is down again. WTI has dropped for its seventh consecutive session. Fears that China’s rebound is running out of steam is hanging over commodities. Also playing into the mix is fact the Chinese government are imposing tougher regulation on certain sectors, and there are fears that other industries are in the firing line too.