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Daily Wrap Up 22 October 2021

22 Oct 2021 04:25 PM

Equities jump amid Evergrande optimism

The mood in the markets is upbeat as Evergrande, the struggling Chinese property firm, made a loan repayment, and that alleviated fears that the company might go down the route of a debt spiral. Lately, there have been on-off fears that the firm might collapse under the weight of its down debt, but the news of the repayment put those concerns to bed, for now at least. Evergrande is not out of the woods yet, but in the near-term things are looking up for the group. The Chinese property market is overheated, and there are worries if a major developer, like Evergrande, were to go out of business, it could spark a sharp correction in the in the entire sector. China is the second largest economy in the world, so if its property market were to suffer a shock, it is likely the tremors would be felt far and wide. The FTSE 100 is up almost 0.6%, and the S&P 500 is fractionally lower. In early trading the US index set a new record high. The NASDAQ 100 is down 0.5%, and it seems the relatively high yields are holding back the tech-heavy index. The US 10-year yield was above 1.66% earlier today, the highest since May. The technology sector has more exposure to debt than traditional industries, so it tends to feel more pain when yields rise.

Despite the upward move in US yields, the US dollar is down today as it has handed back some of the gains it made yesterday. Over one week ago, the greenback hit a 12 month high on account of speculation the Fed will start tapering their bond buying scheme in the near-term, possibly as early as next month. Even though the dollar is off its recent high, the wider uptrend is still in place. The pound has taken a knock today as the UK retail sales reading for September was -0.2%, missing the 0.6% forecast. It was the third month in a row the reading was negative, but it was improvement on the -0.6% posted in the August. The weak consumer activity could dampen the UK’s recovery. That being said, the flash services PMI update for October was 58, its highest in three months, so there is reason to be optimistic for Britain’s continued bound back.

Gold and silver are driving higher this afternoon as the weakness in the US dollar has made them more attractive. Both metals have recorded fresh multi-week highs, and gold is trading above the $1,800 mark.

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