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Daily wrap up 28 July 2021

28 Jul 2021 05:54 PM

Stock markets in Europe are showing modest gains this afternoon thanks to the rebound seen in the FTSE China A50 and the Hang Seng overnight. Earlier this week, Chinese stocks tumbled due to fears surrounding tighter regulation from the Beijing authorities, but for now, those worries have faded a little. The upward move in stocks in the Far East encouraged bargain hunting in the West. European indices are outperforming those in the US but that is partially down to the fact there was a sizeable fall in NASDAQ 100 futures last night, despite the impressive quarterly updates from Apple and Microsoft.

In recent months, the Dow Jones has lagged the NASDAQ 100 in terms of setting new all-time highs, but now the Dow’s small exposure to the tech sector is working in its favour, as the index has seen far less volatility in the past 24 hours.

The Federal Reserve will announce its latest rate decision this evening. Last month, the US central bank caught many by surprise as it signalled it would hike rates twice in 2023, which was a big shift in stance from the March meeting, in which it didn’t predict any hikes in the year in question. Since the last update, the CPI rate has increased to 5.4%, its highest mark in 13 years – the rising inflation is a product of the ultra-loose monetary and fiscal policy. The Fed feel the spike in the cost of living will be ‘transitory’ which suggests they will not be altering their policy just because of the CPI level.

A few weeks ago, Jerome Powell, the head of the Fed announced before US politicians the labour market was not strong enough to justify a tapering of the bond buying scheme. The latest jobless claims report came in at 419,000, a nine week high. It is possible that Powell will state the economy is broadly recovering but there are some pockets of weakness in the rebound. The Fed are unlikely to suddenly adopt a very dovish stance on account of the sub optimal jobs data but at the same time, they are not likely to be any more hawkish than they were in June.

The US dollar is gaining ground ahead of the Fed meeting. It appears to be more of a case of traders squaring up their books rather than a bullish pattern emerging as the greenback dropped to its lowest mark in over one week yesterday. Gold is hanging around the $1,800 mark, the metal is fractionally lower on the session due to the stronger dollar. The metal has been trending lower for almost two weeks, and seeing as it suffered greatly in the wake of the most recent Fed meeting, it seems that some dealers are dodging the asset.   

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