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Daily Wrap Up 27 October 2021

27 Oct 2021 04:22 PM

Risk-off mood prevails, pubs toast Rishi

  Stock markets in Europe are in the red this afternoon as traders in this part of the world took their cues from the losses that were seen in Asia overnight. The Evergrande story took an interesting twist as the Chinese government said the founder of the struggling property group should use his own personal wealth to shore up the finances of the company. Hui Ka Yan is believed to be worth several billion US dollars, but the real estate company has outstanding loans of over $300 billion, so he has no chance of single handily saving the firm. The message from Beijing is very clear, it wants to see these high flying business people stump up some of their own cash rather than just depend on handouts from the public coffers. It feels as if the Chinese government don’t want to set a precedent of bailing out indebted groups while its top executives lead luxurious lifestyles. Even though the mood surrounding Evergrande is more upbeat than it was at the start of the month, the latest development shows the issue has not been put to bed. Yesterday, the FTSE 100 hit a 20 month high and the DAX reached a five week high, and today the indices are showing small losses due to the wider downbeat mood.

Rishi Sunak, the Chancellor of the Exchequer, lifted the UK’s growth forecast for 2021 from 4% to 6.5%, and the economy is now tipped to expand by 6% next year. Despite the rosy growth forecasts, sterling is still in the red. Mr Sunak overhauled the alcohol tax system, and the new rules will deliver cuts for the price of beer and cider, and the news is helping the likes of JD Wetherspoon, Marston’s and Mitchells & Butler.

Government bond yields are lower across the board due to the mild risk-off sentiment. The US 10-year yield has dropped to its lowest mark in over one week, as it is now 1.55%. The slide in the yield has dragged the US dollar lower but the greenback is still above the lows of the week. EUR/USD is higher due to the slide in the greenback. The single currency endured selling recently ahead of tomorrow’s ECB meeting, so today’s upward move could be partially down to traders squaring up their positions. The Japanese yen and the Swiss franc are benefitting from the risk-off mood in the markets.

USD/CAD moved sharply lower after the Bank of Canada revealed that interest rates will be kept on hold at 0.25%. The central bank also announced the end of its quantitative easing scheme, and it hinted that interest rates might be hiked sooner than previously predicted. In the past few sessions, the Canadian dollar came under a little pressure even though oil’s rally continued, but now “the loonie” is driving higher due to the reasonably hawkish update form the BoC.

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