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Daily Wrap Up 29 October 2021

29 Oct 2021 04:26 PM

Tech titans weigh on sentiment, dollar rebounds

Stock markets in Europe are showing modest losses as the mood has been dampened by the latest quarterly results from Amazon and Apple. The tech giants revealed their numbers after the close of trading in the US last night and the stocks sold off in after-hours trading, so that set the tone for Europe today. The NASDAQ 100 is the underperformer of the US indices, unsurprisingly, given its exposure to the tech sector, while the Dow Jones is largely flat.

There was a slew of economic reports from the eurozone today. In the third quarter, the German and Italian economies expanded by 1.8% and 2.6% respectively. Both readings were not too different from the levels posted in the second quarter, so growth in the currency bloc is consistent. Headline CPI in the euro area jumped to 4.1%, the highest mark in 13 years. Yesterday, at the ECB meeting, Christine Lagarde, said the higher cost of living is likely to remain for longer than initially thought, which is what we have been hearing from the Fed and the Bank of England. Traders took that as a sign the bank have become a little less dovish in their outlook. In today’s inflation update, it was confirmed that core CPI increased to 2.1% - the highest level since the early 2000’s. The core reading is considered to be a better measure of actual demand, so it is good to see the reading is moving higher.

The US dollar is recovering from the brutal sell off it endured yesterday. Despite the mediocre economic data from the US, the greenback is higher today, so that suggests that yesterday’s bearish move was overdone. In September, US personal income and spending were -1% and 0.6% respectively, and the core PCE level remained at 3.6%, missing the 3.7% forecast. Next week will be important because the Fed will hold their meeting on Wednesday and the US non farm payrolls report will be posted on Friday. In recent weeks there has been a lot of talk the Fed might begin tapering its bond buying scheme in mid-November, so Wednesday’s meeting will be closely watched. Central bankers often like to give advance warning of plans, so on the other hand, the bank might use next week’s update to send out a message that tapering will be announced at the following meeting.

It has been a tough day after metals as the sharp recovery in the US dollar has hurt industrial commodities like silver, palladium, and copper. Gold is offside too; it speaks to gold’s weakness that it is down over 1.4% on a day when uncertainty is running through equities - the metal often holds up well when stocks are down.

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