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.