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Daily Wrap Up 5 October 2021

5 Oct 2021 04:29 PM

Stocks enjoy rally, dollar bounces back

Stock markets in Europe and the US are in positive territory after a few days of losses. In recent sessions, traders have been preoccupied by fears of higher inflation, but today equities have rebounded. The gains made today are small when compared with the ground lost in the past week.

This time last month, the narrative was very different, because bond yields were relatively low, and inflation wasn’t a major concern. Now there is chatter of persistently high inflation, concerns about lower growth in China and the UK, as well as the possibility of the Fed tapering in early 2022. To an extent, the FTSE 100 has weathered the sell-off reasonably well since BP and Royal Dutch Shell have rallied because of the booming oil market. Over in the US, the NASDAQ 100 is outperforming the other major indices but that needs to be put in context of the three month low it recently hit. Tech stocks typically have a relatively high level of debt, so the NASDAQ has been in the firing line whenever chatter of rate hikes circulate.

The US dollar has been on a wild ride recently as it hit a 10 month high last Thursday, but then it lost ground in the previous two sessions. This morning, the greenback was showing modest gains, but it was lifted by the well-received US ISM services report. The headline ISM reading was 61.9, up marginally on the month, and it slightly topped economists’ expectations. The finer details of the update were pretty good as the new orders metric ticked up from 63.2 to 63.5 and the prices’ paid level was 77.5, up from 75.4. It is a little concerning the employment index was 53, down from 53.7 as it suggests there is a gulf between demand and employers’ willingness to take on new staff. On Friday, the US non-farm payrolls report will be released, today’s data will be baked into expectations. EUR/USD is back below 1.1600 thanks to the move higher in the dollar.

Gold and silver are down 1% and 0.8% respectively because of the rebound in the greenback. In the past two sessions, the metals enjoyed bullish runs but now we have seen a turnaround in the dollar, so they have come under pressure. Gold is also feeling the pain due to the recovery in stocks, some traders are moving funds out of gold in favour of equities. Oil is powering ahead following on from the OPEC+ announcement yesterday that the body will stick with its plans to return 400,000 barrels per day to the market in November. Seeing as the group chose not to ramp up its output, the supply constrains are likely to remain, WTI hit it highest mark since 2014.

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