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Daily Wrap Up 31 August 2021

31 Aug 2021 04:26 PM

Equities slip as bulls lose momentum, dollar falls again

Equity markets are in the red as it seems that dealers are squaring up their books on the final day of the month. Stocks in Europe and the US had a positive run in August, and they were given an extra boost last week by Jerome Powell, who didn’t map out a timeframe for tapering the Fed’s stimulus package. Even though sentiment in stocks is weak today, the wider outlook remains positive as it seems the US central bank is keen to keep its ultra-loose policy on hold for the time being.

Last week, there was chatter the Jackson Hole Symposium would be used as an opportunity to lay the foundation for the beginning of the end of the massive bond buying programme, but seeing as it wasn’t announced, it might be March 2022 before it is tapered. The decision by Mr Powell to not announce a tapering start date might be justified considering the not-so-hot economic reports from the US today. The Chicago PMI reading dropped to 66.8 from 73.4 in July, in addition to that, the Conference Board consumer confidence reading was 113.8 – the lowest mark since February. At the Jackson Hole update, Jay Powell said the labour market still had a long way to go before it was at full employment, with that in mind, traders will be paying close attention to Friday’s US non-farm payrolls announcement.

The US dollar is still suffering from Mr Powell’s update late last week as traders have dumped the greenback now that is appears the Fed will not be changing their policy anytime soon. Earlier in the month, the US dollar index hit a nine month high as it was clear the US economy was rebounding nicely, and there was growing chatter the Fed might look to kick-off tapering in December. There is an argument to be made the greenback was overheated going into the Jackson Hole Symposium, and in turn we have seen a sharp move lower.

EUR/USD hit its highest mark in four weeks, largely due to the drop in the dollar, but the jump in eurozone CPI to 3%, is a factor too. The core CPI reading ticked up to 1.6% from 0.7%, so it is clear that underlying demand is on the rise too.

Gold is showing a modest gain on account of the slide in the US dollar, and to a lesser extent the mild sell off in US and European equities. The metal has been pushing higher for three weeks, and now that tapering seems to be off the table in the near term, it is possible the bullish run will be extended.

WTI and Brent crude are in the red as hurricane Ida has been downgraded to a tropical storm, so it seems that too much disruption to oil production in the Gulf of Mexico was factored into the price in advance of the adverse weather.

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