Stocks dip, dollar’s rebound gains momentum
It has been a relatively subdued day in the markets even though we saw some interesting economic announcements. US traders returned to work following their long weekend, and it seemed as if their European counterparts were content sit on their hands this morning as they waited for the Americans get involved. European indices are a little lower as stocks handed back some of the solid gains that were posted yesterday. Sentiment in the US is a little weak too as the S&P 500 is 0.3% lower.
China posted strong trade data last night as imports and exports grew by 33.1% and 25.6% respectively. Both reports showed increases on the previous readings so that suggests that domestic and international demand is on the increase. Two months ago, the Chinese central bank lowered the reserve requirement ratio in a bid to encourage business activity, and now that imports are growing at a faster rate, it could be a sign the policy has worked. Typically, when China reveals robust reports it often lifts sentiment in western markets, but that has not been the case today.
The German ZEW economic sentiment reading for September fell to 26.5, the lowest mark since April. In the past few months, there have been mixed updates from Germany, so the ZEW announcement contributes to the view the largest economy in Europe might be moving down a gear.
Overnight, the Reserve Bank of Australia kept interest rates on hold at 0.1%, meeting forecasts. The bank’s stimulus package will be trimmed from $5 billion per week to $4 billion per week, but the buying programme will be extended until February 2022. The extension of the scheme detracts from the reduction, so there is a sense in the markets it was not a proper taper, and in turn the Australian dollar is down versus most major currencies.
The US dollar continues to rebound from the battering it took last week on account of the disappointing ADP employment and non-farm payrolls reports. Last Friday, the greenback fell to a one month low in light of the jobs data but now the dust has settled, and bargain hunters have stepped into the fold. EUR/USD and GBP/USD are in the red.
Gold is down again as the rally in the US dollar is hurting the commodity. At the end of last week, the yellow metal hit its highest mark since mid July, largely due to the softer dollar, but now we are seeing a slight reversal of that move. Gold is trading below $1,800, the lowest mark in over one week.