Stocks gains as yields fall, dollar tumbles
Stock markets in the US are up as the dip in bond yields have paved the way for the bulls to take centre stage. Last Friday, the powerful US non-farm payrolls report increased chatter the Fed might do another large rate hike next month. The markets are pricing in a 69% chance of a 75-basis points hike from the US central bank in September, and keep in mind the probability was 41% prior to the numbers being released. Even though that is a significant change in the percentages, the US10-year yield has cooled. As a reaction to the jobs data last Friday, the yield topped 2.86%, which in the grand scheme of things is not that high. While the 10-year yield remains below the recent peak, it is possible that equites might stay in high demand. The S&P 500 has set a fresh two-month high, which is remarkable when you consider dealers are bracing themselves for another 0.75% lift by next month. It is almost as if the bond market is shrugging off the jobs report. Meanwhile, US equities are embracing the employment numbers as it undermines the headline the US economy is in a technical recession.
The US dollar is down 0.4% as traders are booking their profit from the massive rally seen last Friday, where it hit its highest level in eight days. EUR/USD and GBP/USD are receiving a boost from the fall in the US dollar. AUD/USD is booming as not only is the greenback falling, but the Australian dollar is also driving higher because of the overall risk-on attitude in the markets.
Gold is up 0.7% on account of the fall in the US dollar. The inverse relationship between the two markets continues to be strong, much to gold’s benefit today. It is worth noting that gold is undergoing a reasonably big rise on a day when stocks are rallying, so to a certain extent the wider optimistic mood in the markets is probably holding back gold. Industrial metals like silver and copper are up 4.1% and 1.8% respectively. Oil has swung into positive territory despite the worries about demand. China is the largest importer of oil in the world and last month it imported 8.79 million barrels of oil, and that represented a 9.5% fall on the year.