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Daily Wrap Up 23 August 2021

23 Aug 2021 04:47 PM

Risk-on mood sweeps the markets

Traders are in a bullish mood as they are happy to swoop in and pick up relatively cheap stocks. Last week, markets sold off due to worries about the possibility of the Federal Reserve tapering its bond buying programme sooner than expected, also, there were worries about tighter regulation in China. Despite the fact there has not been a major change in the landscape, dealers are in a bullish mood today.

The Jackson Hole Symposium kicks off on Thursday, and it is possible that volatility will remain low until then, as the commentary from central bankers will be in focus. Judging by the latest US non-farm payrolls report, jobless claims update, services and manufacturing PMIs, the US economy is clearly in good shape. At some point, the Fed will look to taper its stimulus scheme, but traders remain divided over when the taper will begin. In the past decade, equity markets have become addicted to ultra-loose monetary policies from central banks, which explains the colossal rallies, but at the same time, the prospect of the stimulus scheme being curtailed tends to put pressure on indices. European and US markets are pushing higher today but it is worth noting the wider economic picture hasn’t changed. The NASDAQ 100 has seen the most impressive rebound as it is not too far away from its record high.

Last week, the US dollar rallied to a new nine month high, partially due to the taper chatter, and partially due to the flight to quality effect, but today dealers are booking their profits. The dollar index is down 0.4%, so it has given a big lift to GBP/USD and AUD/USD, but the greenback’s broader uptrend remains intact. The US’s recovery is far from perfect, but it appears the Fed is closer to tightening its policy than the other major central banks, like the Bank of England or the European Central Bank, hence, why the dollar’s wider uptrend is still in place.

Commodities are enjoying a rally today thanks to the switch to risk-on sentiment. WTI is up over 5%, following on from the seven consecutive days of losses it suffered. Industrial metals like platinum and copper are gaining ground as the fears of China cooling down are on hold for now. Gold is trading above the $1,800 mark – its highest level in over two weeks – thanks to the weaker US dollar.

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