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Daily Wrap Up 6 September 2021

6 Sep 2021 03:50 PM

Europe rallies as taper fears fade

Stock markets in Europe are showing solid gains today as traders are less fearful of the Federal Reserve tapering its bond buying scheme in light of last week’s disappointing non-farm payrolls report. At the Jackson Hole Symposium, Jerome Powell, the Fed chief, didn’t map out a timeline to start reining in the asset purchase scheme. The update gave equities a boost as it seemed the central banker was not in a hurry to alter the current policy.

Last Friday’s employment report showed that 235,000 jobs were added in August, greatly undershooting the 750,000 forecast. Equity traders are taking the view the Fed are now less likely to scale back their bond buying scheme in the months ahead. In late August, Powell cautioned the labour market had a long way to go before it hit full employment and when you take a look at the latest non-farm payrolls reading, he was right to be a little guarded with his language. US stocks markets have remained closed today as the US celebrates Labour Day, but the FTSE 100, the DAX 30 and CAC 40 are driving higher.

Volatility is low in the markets across the board. The US dollar has rebounded from the four week low it fell to on Friday as a result of the dismal US jobs update. It is worth remembering that last week’s US ADP employment report also majorly underperformed, so dealers already had low expectations going into the US jobs report, which turned out to be poor. The upward move in the dollar today seems to be down to a combination of short covering and bargain hunting. Even though the dollar has been under pressure lately, the uptrend that has been in place since late May is still in effect. EUR/USD is back below the 1.1900 mark.

Gold hit its highest mark since mid-July on Friday as the tumble in the greenback gave another boost to the metal. When it comes to talk of tapering, gold has a track record of selling off, but now it appears the Fed might not taper until Spring 2022, hence why it hit a multi-week high last week. Today, Gold is a little weaker as the mild rebound in the dollar has provided a good excuse for profit-taking.

WTI and Brent crude have pulled back much of the losses that were incurred overnight and the energy contracts are now basically flat on the session. Hurricane Ida disrupted the US energy sector, and it is only now that things are starting to settle down as certain parts of the US had to dealing with intense flooding.

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