Stock markets had a relatively calm start to the session as European benchmarks registered respectable gains. The impressive rally in the Nikkei 225 overnight set the scene for equities in Europe. The pleasant sentiment that circulated in the markets was disrupted by a sharp fall in cryptocurrencies. Bitcoin and Ethereum are down 3% and 3.8% respectively as the authorities in China are cracking down on the digital currencies. The markets in question were showing losses of 10% only a few hours ago but they have since recouped some of their losses.
In mid-May, there was brutal tumble in cryptos and that triggered declines in stocks too. To a far lesser extent, we saw something similar today. Bitcoin fell below the $30,000 mark and it is close to registering negative growth on the year. Equity markets in Europe and the US moved into the red as the selling pressure on digital currencies grew but the indices are now back in positive territory.
Jerome Powell, the head of the Federal Reserve will be in focus later on as he is due to testify in front of the House Select Committee on the Covid-19 crisis. Last week, the US central bank signalled that interest rates might be hiked twice in 2023. In addition to that, James Bullard - Fed member - said that rates could be lifted next year. The markets are getting used to the idea that rates will not stay at ultra-low levels forever. For this evening’s update, Mr Powell will be discussing how well the US economy is holding up considering the coronavirus crisis. The latest jobs report showed the unemployment rate dropped to 5.8%, which is a huge improvement on the 14.7% level recorded in April 2020. It is worth noting the jobless rate was 3.5% prior to the pandemic. Mr Powell is likely to state the economy is recovering nicely, but it is still a long way from where it needs to be before monetary tightening can begin.
The US dollar is a little higher today as bargain hunters swooped in following on from the pull back that was seen yesterday. The Australian dollar, the euro and the pound are lower as a result of the rebound in the dollar. Gold has experienced a lot of volatility lately, it took a knock last week as a result of the hawkish update from the Fed so the remarks from Mr Powell this evening could inject some volatility into the metal. Gold’s recovery from last week’s slide seems to be running out of steam, a failure to make headway towards the $1800 mark could see it retest the recent lows.