Weekly Market Wrap 26-Jul to 30-Jul 2021
Marius Paun | London, UK | Senior dealer |Friday 30th July 2021
The US Fed Left Interest Rates And QE Unchanged
On Wednesday, the US Federal Reserve left interest rates unchanged and reassured the global market of their commitment to support the economy. The Fed Chair Jerome Powell acknowledged that progress was made towards maximum employment and price stability goals. At the same time, he promised to keep rates close to zero and continue the quantitative easing policies of purchasing $120 billion worth of bonds every month.
Powell also remarked that the sectors most affected by the pandemic are showing improvements, but have not yet recovered. He maintained his stance that inflation has indeed risen but largely due to transitory factors such as a supply bottleneck. The reaction in the stock markets has been mixed with investors cautiously optimistic after data showed GDP advancing 6.5% in the second quarter vs +8.5% anticipated.
China and the US held talks this week but neither side expected major breakthroughs. On one hand, the US saw a ‘healthy, professional’ exchange of views and China asked Washington to remove visa restrictions on some of its officials. It appears that for now there was no discussion on a potential Biden-Xi meeting. Elsewhere stock markets in China tumbled sharply, especially tech shares, on fears of regulatory measures against technology and property sectors.
We also heard from Germany, Europe’s largest economy, where an IFO economist admitted there are some serious supply problems weighing on the economy on both industry and retail. Apparently, over 60% of industrial firms are complaining about the shortage of raw materials and that prices are rising. At the same time, over 60% of wholesalers and over 40% of retailers report shortages. Overall, the German economy is struggling to reach its full industrial production potential.
In the UK, the media reported that the European Union paused its legal action against Britain over Northern Ireland protocol breaches. The dispute started in May when Downing Street changed the implementation of the protocol, which was previously agreed, to avoid a hard border in Ireland. Currently, the UK wants a substantial renegotiation of the deal.
The US oil prices continued to rebound this week from under $72.00 a barrel to $73.4 going into the weekend, on renewed weakness in the US dollar. Support was also offered by the weekly crude inventories data showing a drop of 4.1 million barrels versus a decline of 2.6 million barrels expected.
Gold prices broke back above the $1800.00 mark to trade around $1822 on Friday afternoon as the US Federal Reserves kicked the can on tapering at its monetary policy meeting.
Bitcoin traded again above $40,000 on rumours that Amazon was toying with the idea of accepting Bitcoin. It moved lower the next day, now around 39,000 level as Amazon came out denying it will accept Bitcoin any time soon.
Weekly Market Wrap 19-Jul to 23-Jul 2021
Marius Paun | London, UK | Senior dealer |Friday 23rd July 2021
The ECB keeps interest rates on hold
The US stock markets saw sharp selloffs on Monday following a resurgence in Covid-19 infections around the world, especially the dreaded Delta variant. But things started to look calmer over the next few days and the main indices recovered all of the losses. By and large, the earnings season surprised on the positive side so far, reigniting the risk-on mood. The US president Joe Biden weighed in saying ‘most experts’ believe long term inflation is not likely to get out of hands’….. plenty of hedge funds old-timers would strongly disagree.
On another note, the US Senate voted 51-49 against starting the debate on the bipartisan infrastructure bill. That was not very encouraging and undoubtedly angered the White House, but at least a few hours after the vote, the media reported the hype has started again. It could be a signal there is still significant interest in passing the bill, although possibly in a different format.
We also learnt that The People’s Bank of China held a 1-year interest rate at 3.85% and 5-year at 4.65% for the 15th month in a row in a move that was widely expected. Earlier in the month, the central bank lowered the cash that banks need to hold as reserves thus freeing up around 1 trillion yuan in long-term liquidity.
The European Central Bank left its benchmark interest rate unchanged during its July monetary policy meeting, adding that the QE will continue at its current pace. President Christine Lagarde said the medium-term outlook for inflation remains well below ECB’s target. As a result, the ECB has revised the forward guidance on interest rates emphasizing its commitment to maintaining an easy monetary policy. Specifically, rates will stay at their present levels or lower until inflation reaches 2%. The ECB admitted that a transitory period in which ‘inflation is moderately above target’ is also possible.
Back in the UK, the Bank of England policymaker Ben Broadbent said the extent of rising in inflation has indeed been surprising and needs close attention going forward. However, for now, he was not convinced that the current spike in retail goods prices would necessarily translate to higher inflation 18-24 months down the line.
The US oil prices followed stocks lower on Monday’s session but recouped the losses to trade around $71.3 on Friday afternoon. Over the last weekend, OPEC+ agreed to a plan to increase output in 400,000 BPD. During the previous meeting, tension was high as the UAE demanded a higher baseline quota starting in May. That left OPEC in a bit of an impasse until Saudi Arabia, as always, made a compromise with the UAE.
Gold prices dropped to $1789 this week where it found good support largely on an ongoing strength in the US dollar. The precious metal oscillated around $1800 mark looking for direction although many say the prospect of inflation should act as solid support.
Bitcoin came under pressure at the beginning of the week dropping below the $30,000 mark on the risk-off mood in the world markets. Nevertheless, sentiment turned mid-week which pushed it back above 32,000 when Musk said Tesla will ‘most likely’ resume accepting bitcoin….. make up your mind Elon!