US dollar stages late rally, Wall Street fears taper talk
Stock markets in Europe got off to a good start today as traders were handed the bullish baton by their counterparts in Asia. The indices in the far east gained ground thanks to the surprisingly robust services data from China, it was a pleasant change from the turbulence witnessed in Chinese markets recently due to fears about tighter regulation. The services PMI reports from the UK and the eurozone were well received too, so that added to the view that Europe’s recovery is still intact. In recent months, the FTSE 100 has underperformed but lately it has been driving higher, today it hit its highest mark in over three weeks.
We saw mixed data from the US today, as the ADP employment report greatly missed forecasts, while the ISM services data returned to its previous impressive form. According to the ADP update, 330,000 jobs were added last month, which was nowhere near the 695,000 that economists were expecting. This fuelled fears the rebound in the US economy is running out of steam, last week the second-quarter GDP report was 6.5% - missing the 8.5% estimate. On the bright side, today’s ISM services report was 64.1, a big increase from the previous reading of 60.1. The finer details of the update were all positive too, the employment index ticked up from 49.3 to 53.8 – confirming growth. The new orders and prices paid components increased too. Today’s data led to a very volatile US dollar, as the greenback took as a knock following the ADP figure, but then surged to its highest mark in almost one week as a result of the services update. The S&P 500 and the Dow Jones are in the red as equity traders fear the prospect of tapering chatter.
NZD/USD is still up on the session even though the US dollar has rallied in the last few hours. New Zealand’s unemployment rate fell to 4%, comfortably beating the 4.4% forecast. The Kiwi powered ahead as the jobs data raised the chatter about the country moving closer to raising interest rates.
Silver and gold also saw sharp moves on account of the swings seen in the US dollar. Both metals were pushing higher this morning, and they were given a boost by the ADP reading. Silver went on to hit its highest mark since mid-July, but the metals sold off when the dollar jumped following the services data.
Oil has endured a rocky ride recently, partially due to concerns that rising Covid-19 cases in certain parts of the world will dent demand, and partially because of Monday’s disappointing manufacturing data from China. Things have gone from bad to worse for Brent crude and WTI as the EIA report showed that US oil inventories jumped by 3.6 million barrels, while traders were expecting a draw of 3 million barrels. The unexpected surge in inventory indicates that demand is weak, but it is worth noting that gasoline inventories fell by 5.2 million barrels, so demand for gas is healthy. WTI and Brent crude are down 2% and 1.4% respectively.