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Daily Wrap Up 25 October 2021

25 Oct 2021 04:41 PM

Stocks steady, euro suffers

Volatility is low in equity markets due to a lack of major macroeconomic news. The optimism that was in circulation at the end of last week, following the loan repayment from Evergrande, is still doing the rounds today. Equities in Europe and the US are showing modest gains. The FTSE 100 is being helped by the oil and gas sector again as Brent crude hit a new three year high, so BP and Royal Dutch Shell are higher this afternoon. Corporate earnings are in focus this week and some of the tech giants will reveal their latest figures in the days ahead, Facebook will announce its third quarter numbers tonight.

As far as economic indicators go, it has been a quiet session. The German IFO business sentiment report slipped from 98.9 to 97.7 in October, the lowest mark in six months. Last week, it was revealed the German flash manufacturing and services reports fell to nine month and six month lows respectively. It is becoming more obvious that the largest economy in Europe is cooling. The euro is under pressure across the board today. Traders are looking ahead to Thursday’s ECB meeting. In the past month, the Bank of England and the Federal Reserve have adopted a more hawkish tones, but the ECB seem to be sticking to their view that rising inflation is only temporary. Should the ECB continue to shrug off the high inflation data, and focus on the falling unemployment rate, it is possible the single currency could fall further. The US dollar has bounced off its recent low. Lately there is a disconnect between the US dollar and the 10-year yield, as today the greenback is firmly higher, while the yield is a touch lower, while last Friday, the opposite was the case.

Gold saw a jump in volatility at the back end of last week and things have calmed down today. The metal is back above the $1,800 mark even though the greenback is higher on the session. It says a lot about gold when it can muster a rally in the face of a risk-on session and a stronger US dollar. If the commodity can continue to push higher, it might encounter resistance at the $1,833 zone – this region acted as a barrier between July and September.

Oil is powering ahead again as data from the Commodity Futures Trading Commission confirmed that money mangers have increased their net long futures and options positions on the energy. In addition to that, the Baker Hughes update showed the number of active rigs fell for the first time in seven weeks.

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